HSBC pushes for $6.3-billion Korean deal with warning to pull out

27 May 2008

HSBC Holdings PLC is committed to its intention of acquiring Korea Exchange Bank (KEB), it said on Monday, but it is not prepared to wait for too long for the deal to be through. Therefore, there is little chance of the London-based bank walking away in frustration from the proposed $6.3-billion deal, although it has enough reasons to do so.

''We have extended (the acquisition deadline) until July and we are hopeful that the government will take appropriate action,'' HSBC Korea CEO Simon Cooper said, adding, ''KEB is a good fit with HSBC, offering a valuable platform and scope for growth.''

HSBC's proposed purchase of a 51.02-per cent stake in the Korean bank has been in limbo for more than eight months, leading to speculation in the media on Monday that the bank might walk away from the deal. This had led to a gain in the Korean bank's shares on speculation that HSBC's exit might initiate a bidding war among domestic banks for picking up KEB.

The South Korean regulatory authorities have still not cleared the purchase of the stake, which HSBC is buying from American private equity fund Lone Star, because of legal uncertainties over Lone Star's initial purchase of the bank in 2002.

The head of Dallas-based Lone Star's Korean unit, Paul Yoo Hoe-won, was convicted of stock price manipulation in the takeover of KEB's credit card unit in February and sentenced to a four-year jail term, while Lone Star and Korea Exchange Bank were fined $26.5 million each.

Lone Star has long battled suspicions that it was able to purchase KEB in 2003 at a bargain price after colluding with government officials to understate the bank's financial health.