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Hana Completes $3.9 Billion Takeover of Korea Exchange Bank From Lone Star

Hana Financial Group Inc. (086790) completed its 4.4 trillion won ($3.9 billion) purchase of Korea Exchange Bank (004940) from Lone Star Funds and Export Import Bank of Korea, allowing Hana to narrow a gap with rivals and the U.S. fund to exit the investment after eight years.

Hana completed the payment today and officially closed the deal, which was pending more than a year, Hana President Kim Jong Yeol told investors and analysts in a telephone conference. Seoul-based Hana agreed to buy Lone Star’s 51 percent stake for 3.9 trillion won and an additional 6.25 percent from Export Import Bank of Korea for 11,900 won a share. It’s the bank’s biggest takeover.

Lone Star exits with more than $4 billion in profit since investing in the South Korean lender in 2003 in the wake of the 1997-98 Asian financial crisis. For Hana Chairman Kim Seung Yu, the transaction ends more than a year of legal and regulatory delays and gives his bank operations abroad to compete with KB Financial Group Inc. (105560) and Woori Finance Holdings Co. (053000)

The fund had already recouped 2.9 trillion won in before- tax profit on its initial 2.15 trillion won investment via dividends and a sale of some shares, according to data from Korea Exchange Bank. Lone Star failed in earlier attempts to sell the stake due to ownership disputes, stock-trading investigations and a public backlash over the buyout firm’s profit.

Shares of Hana rose 1.7 percent to 41,200 won at the close of trading in Seoul and Korea Exchange Bank slid 0.4 percent to 8,100 won. The benchmark Kospi index gained 0.5 percent.

Earlier Attempts

South Korea’s Financial Services Commission ruled on Jan. 27 that Hana, South Korea’s fourth-largest financial group by assets, has sufficient health and funding to buy Lone Star’s stake. The sale price has been reduced twice since the deal was struck in November 2010.

Courts, regulators and lawmakers helped derail Lone Star’s attempts to sell the stake since 2006. HSBC Holdings Plc (HSBA) dropped a $6 billion bid in September 2008 after authorities left the proposed transaction in limbo for more than a year because of legal disputes.

That was the second blow to Lone Star after Kookmin Bank, now part of KB Financial, walked away from talks to buy 65 percent of Korea Exchange Bank in November 2006, after beating Hana for the right to negotiate earlier that year.

Board Changes

Hana will name Vice Chairman Yun Yong Ro as chief executive officer of KEB at a shareholders meeting due in March and will appoint board members recommended by Hana, President Kim said. Hana will start a task force for smooth integration of KEB while keeping its operation separate from the existing Hana Bank unit, he said.

Hana Chairman Kim on Jan. 27 repeated that the company will keep Korea Exchange Bank independent and won’t merge it with Hana’s bank unit for a while, saying the addition of KEB will improve the company’s global reach.

Overseas operations accounted for 3.6 percent of KEB’s 12.2 trillion won revenue in 2010, compared with Hana’s entire revenue coming from South Korea, according to data compiled by Bloomberg.

Hana separately said profit gained 11 percent to 153.8 billion won in the fourth quarter from a revised 139 billion won a year earlier. Loan-loss provisions fell 48 percent from a year earlier to 101.9 billion won, according to a regulatory filing.

To contact the reporters on this story: Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Chitra Somayaji at csomayaji@bloomberg.net

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