South Korea Calls Deal With U.S. Buyout Firm Illegal

As private equity firms in the United States increasingly look overseas for takeover targets, they might want to consider the plight of Lone Star Funds. The Dallas-based firm, whose 2003 acquisition of Korea Exchange Bank has prompted an investigation by South Korea’s government, faced a new setback on Thursday when a senior prosecutor claimed to have discovered illegal aspects of the transaction. The finding could lead to the $1.3 billion sale being voided, Reuters said. The controversy comes amid concern that stepped-up investments from foreign firms could prompt a backlash, not just in South Korea but in other nations as well.
The months-long inquiry in South Korea has already led Lone Star to cancel a deal to sell its stake in Korea Exchange Bank to Kookmin Bank for $7.3 billion, which would have allowed the firm a highly profitable exit. In deciding to scrap the deal last month, Lone Star cited the uncertainty created by the open-ended investigations conducted by what it called “politically motivated'’ prosecutors.
Lone Star defended its acquisition of the Korean bank on Thursday, calling the prosecutors’ latest findings “the same old broad conspiracy theory that never made any sense and still is not supported by any hard evidence.” The notion that Korea Exchange Bank was sold for a bargain price is “absurd,” Lone Star said.
Go to Article from Reuters via The New York Times »Go to The Financial Times’s FT Video »Go to Press Release from Lone Star Funds via PRNewswire »