By Kim Jae-kyoung
The labor union of Korea Exchange Bank (KEB) has stepped up protests against Hana Financial Group’s takeover attempt, claiming that it could lead to another “winner’s curse” similar to the one Kumho Asiana Group suffered due to the acquisition of Daewoo Engineering & Construction.
On Monday, the union and 100 KEB employees held a rally at the headquarters of the Financial Services Commission (FSC) to adopt a resolution calling for an explanation on suspicions associated with the KEB deal. They also staged one-man protests at the National Assembly and Hana’s main office.
In a press release Monday, the union said that the financial regulator should not turn a blind eye to Hana’s move to acquire KEB in an improper way, saying that it is trying to favor Hana.
“In order to pay Lone Star the five trillion won price tag for its controlling 51-percent stake, Hana needs to borrow an additional three trillion won. KEB and Hana Bank will eventually have to shoulder the debt burden,” it said.
“Temasek Holdings, the former biggest shareholder of Hana, recently left the bank by selling off its entire stake, and other major shareholders, including Goldman Sachs, are raising questions over the future of the group,” it added.
On Nov. 13, Hana signed a memorandum of understanding (MOU) with Lone Star to take over the U.S. buyout fund’s stake of KEB for the current market value plus a 10 percent premium on managerial rights.
KEB shares closed at 12,850 won Friday. Given that the fund owns 329.04 million shares, the fund’s stake is estimated at around 4.23 trillion won ($3.75 billion). If a premium is factored in, the total amount is expected reach 4.7 to 4.8 trillion won.
Hana completed due diligence on KEB last week. “We will announce whether to sign a share purchase agreement with the fund as early as Tuesday or Wednesday,” a representative of Hana said.
The union pointed out that the biggest problem is Hana’s attempt to use so-called double leverage for the takeover. “If the regulator allows Hana to use double leverage, it is clear evidence that it is favoring Hana,” it said. Hana Chairman Kim is a close friend of President Lee Myung-bak. They attended Korea University together.
Double leverage refers to a form of financing by a bank holding company to acquire a large equity stake in a subsidiary bank through debt offering or issuance of corporate bonds. The union said that the fact that banks are willing to use the double leverage option may suggest that regulators should allow banks to use more debt-based financing
However, it is unlikely that KEB union’s strong protest will thwart Hana’s bid to acquire the nation’s fifth largest lender as Hana and Lone Star has already agreed on details regarding labor issues.
“When they signed the MOU on Nov. 13, the two parties agreed on labor issues. I don’t think the protest will affect the deal,” the source said. But he refused to elaborate further.
KEB executives and employees have said that they prefer a strategic buyer who can retain the KEB brand and maintain the current payroll. If Hana takes it over, however, it is inevitable that KEB will be merged into Hana in the long run.
Last Friday, around 4,000 KEB employees at the main headquarters and around the country launched a large-scale protest, claiming that Hana does not have the management ability to properly manage Korea Exchange Bank’s assets, finances and personnel.
With a merger between Hana and KEB, it would become the third largest banking group in the country. As of the end of September, Hana Financial had assets of 200 trillion won, while KEB's assets are at 116.2 trillion won.
Lone Star took over the then troubled KEB in late 2003, buying a 51 percent stake for $1.3 billion. It raised its stake to 64.62 percent, but sold part of it in 2007. Lone Star was previously in talks with Australia & New Zealand Banking Group (ANZ) for the sale of its stake of the Korean lender.