The Lehman-Korea soap opera continues. Last week, Korea Development Bank (KDB) was going to buy Lehman. Then Korea’s regulator said it wasn’t about to let Korean government money be blown on a hairball like that. And now, today, KDB and Lehman are in talks again–and fighting about price.
The Sunday Telegraph says KDB is ready to invest $6 billion in Lehman and may buy up to 25% of the company (implied valuation $24 billion, twice Lehman’s current market cap). The Telegraph also said the two companies are having trouble agreeing on a price, however.
Korea Development Bank (KDB), a bank owned and operated by the South Korean government, may take a stake in Lehman Brothers (LEH). The bank’s CEO, Min Euoo Sung, confirmed the development in an interview in Seoul today, refusing to give further details or comment as to the scale or nature of the investment.
Lehman is expected to record a writedown that could exceed $4 billion next quarter, and CEO Dick Fuld is likely desperate to find new ways to infuse LEH with new cash. KDB is well-capitalised, and taking a stake in Lehman wouldn’t seriously stretch its financial resources.
Regulators on both sides of the Pacific have been weary of the deal. Previously, Jun Kwang-woo, head of Korea’s Financial Services Commission said:
In principle, taking over a global investment bank can become an opportunity to raise the capability of the [Korean] investment banking business. But at the same time, as the risks are also big, KDB should take a cautious approach. We welcome any efforts led by the private sector to go global, but it may not be proper for state-owned financial institutions to lead the role and take on excessive burdens.
But Korean regulators are now looking at a prospective deal more favourably. FT:
The Financial Services Commission, Korea’s top financial regulator, said yesterday it was looking at the issue “in a positive way”…
Korean analysts said they expected KDB to form a consortium with local commercial banks to buy Lehman Brothers particularly as Mr Jun recently warned against KDB playing a leading role in the possible acquisition, saying it would be taking on too much risk. He told reporters that such a deal should be led by private lenders. “We set the boundary so we believe that KDB will not go against the government guideline,” the FSC said.
Even if KDB skirts Korean regulatory concerns by partnering with a consortium of private lenders, there is no guarantee that the deal would pass American regulatory scrutiny. Also, given an attractive local environment for takeovers, some analysts think a KDB deal is unlikely.
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