Duel to Take Over KEB Set to Restart

When a commodity that is put up for sale has a number of interested buyers, trade should build up as long as the price remains reasonable.

That's the story of Korea Exchange Bank (KEB). U.S.-based hedge fund Loan Star has been trying to dispose of its 51-percent stake in the lender for the past few years.

Loan Star's attempts have failed for some reason, but interest in KEB is starting to heat up again as the country's two deepest-pocketed banks are preparing to make a move for KEB.

The state-run Korea Development Bank (KDB) set the tone in early May as its head, Min Euoo-sung, expressed a desire to acquire KEB.

KB Financial Group, the holding firm of Korea's No. 1 commercial bank Kookmin, followed suit as the Seoul-based outfit is reportedly building a war chest to compete with the KDB.

A KB spokesperson said Wednesday that it had hired investment banks to raise capital by issuing new shares. He contended that the amount will be decided later but observers estimate it would be up to $2 billion.

``KB has no reason to raise so much money if it is not to buy an entity such as KEB. The market consensus is that the $2 billion is a war chest to take over KEB,'' NH Investment & Securities analyst Kim Eun-gab said.

``Some even suspect that KB and Loan Star already reached an agreement although both would deny such claims. Anyway, the $2 billion should be all about an acquisition,'' he said.

Plus, KB Chairman Hwang Young-key told Yonhap News Wednesday that KB would endeavor to acquire financial companies, including KEB, when the economy gets back on track.

``KDB CEO Min is the same man who strived to gobble up Lehman Brothers in 2008. KB Chairman Hwang is also famous for his wolf-like hunger for mergers and acquisitions (M&A),'' a Seoul analyst said on condition of anonymity.

``The two charismatic heads of banks, both with rich cash reserves, will crash to snap up KEB. No other players are likely to get in. It would be a hard-fought competition between the two juggernauts,'' he said.

Unionists Favor KDB

Backed by some politicians and bureaucrats, the KDB is eager to get KEB before going private because the former does not have a retail banking segment.

It plans to add a retail sector by acquiring commercial banks such as KEB so that it will be able to post profits when it is privatized.

For KB, KEB is also an attractive target. KB is jockeying to improve its overseas operations on the strength of the much-envied foreign networks of KEB.

From the perspective of KEB employees, they favor the KDB and they are against KB.

``The most important criteria for us is whether or not KEB will be able to maintain its own operations and identity after an M&A,'' KEB trade union spokesman Kim Bo-heon said.

``In a sense, we cannot accept KB. Furthermore, KB Chairman Hwang is notorious for having pushed ahead with ill-fated M&As over the past several years. We are against KB and Hwang,'' he said.

The KDB does not focus on commercial banking services. Its 40-plus branches across the country are essentially government arms carrying out financial policies such as corporate restructuring.

In comparison, KB has a nationwide retail network, just like KEB. Hence, should it acquire KEB, many of the bank's employees are expected to be sacked.

Loan Star funneled $1.2 billion to acquire KEB in 2003 and tried to sell it several times ― to little avail.

In 2006, Loan Star agreed to sell a controlling stake in KEB to Kookmin Bank for up to $6 billion. But the deal collapsed due to a public backlash as many were angry at the huge profits chalked up by Lone Star.

Two years later, the Dallas-based fund reached an agreement with London-based HSBC Holdings at $6.3 billion, but the contract also fell apart amid the financial crisis last September.