Lone Star's backing out of deal part of plan, says lawyer

U.S. fund, under fire, calls off bank merger

Texas-based fund Lone Star, which has been embroiled in accusations of price fixing in its purchase of Korea Exchange Bank (KEB) and its credit card company three years ago, has broken off its sale of KEB to Kookmin Bank.

This comes as no surprise to Kim Joo-young, a lawyer with Hannuri Law, who had predicted the event before it happened. About the decision, Kim said on November 24, "The biggest reason why Lone Star abrogated the contract is not due to the prosecution's investigation [into its acquisition of KEB], but because the fund wanted to sell Korea Exchange Bank (KEB) under more favorable conditions than the sale is under currently." It is as if the prosecution has helped Lone Star by continuing its investigation, as Lone Star was given an excuse to break off the deal, which it wanted to do all along, Kim said.

Hannuri has taken part in shareholders' meetings on behalf of the KEB trade union, which owns 100,000 shares of the bank. On November 22, a day before Lone Star one-sidedly cancelled the deal to sell KEB to Kookmin Bank, Kim had said that it was "highly probable that Lone Star will cancel the contract.''

Kim continued that day, "As KEB's earnings have continuously shown an upward curve and the South Korean stock market has also been on the upswing, Lone Star seems to have judged that the share price of 15,200 won (US$16), as per its deal with Kookmin Bank, is too cheap," said Kim, adding, "Lone Star may have thought that it would be better to get dividends [from KEB] this year and sell KEB next year, instead of maintaining the contract [with Kookmin].''

KEB's dividends this year are estimated at about 1.9 trillion won (US$2.1 billion), and with Lone Star owning 64.6 percent of KEB's shares, it would receive 1.2 trillion won of this.

Regarding the now-cancelled merger of KEB and Kookmin Bank, the Fair Trade Commission (FTC) has investigated regarding possible practices of monopoly and oligopoly, said Kim. "Lone Star seemed very concerned over the result that the now-cancelled merger of KEB and Kookmin Bank was approved only under condition that the foreign exchange section of KEB be sold separately." If the FTC decides that the foreign exchange section of KEB has to be sold as a separate unit, the value of the bank will significantly drop.

In connection with the fact that Lone Star mentioned the prosecution's probe as a reason behind the cancellation of the deal, Kim disagreed, saying that the investigations or indictment would not be a large obstacle for the contract. According to Kim, Lone Star may have calculated that it could elicit people's sympathy as well as apply pressure on the investigations by blaming prosecutors for the cancellation of the deal. Lone Star may have chosen an alternative so that it can get dividends, pressure the prosecutors to make a favorable decision for the fund, and delay investigators' decision on the monopoly and oligopoly allegations.

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