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Negotiations for Korea Development Bank to buy a stake in Lehman Brothers, the fourth largest U.S. investment bank, have collapsed. Rumors about the impending bankruptcy of the investment bank have been circulating on Wall Street in the wake of the U.S. subprime mortgage meltdown.
KDB and Lehman executives reportedly held secret negotiations until early August but hit a snag at the last stage. KDB has now given up on buying a stake in Lehman, but there is still the chance that a civilian Korean bank will take it over.
The president of one Korean bank said it was ˇ°marvelousˇ± that Korean firms have even negotiated to buy America's fourth largest investment bank. ˇ°This is a sea change, compared with the financial crisis 10 years ago when we begged the U.S. for help,ˇ± he added.
Lehman Brothers began trying to sound out Korean firms in June. A few Lehman executives informally visited the Korea Investment Corporation, which had earlier invested $2 billion in Merrill Lynch. After feasibility studies and a review of investment opportunities, KIC judged that the American bank was not an attractive investment target.
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Lehman Brothers' headquarters in Times Square in New York /Getty Images
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But Lehman approached KDB about the time KIC said no to its offer. KDB chairman Min Euoo-sung, who had been chief of Lehman's Seoul branch for three years until right before he became KDB chief in June, pushed for the takeover deal. KDB continued negotiations with a plan to take over Lehman in cooperation with several other Korean banks.
A bank executive who participated in the negotiations, said, "We believed that if we buy a world-renowned financial firm for W7-8 trillion (US$1=W1,055), it will provide important momentum for Korea's financial industry to go global.ˇ±
The two sides had reportedly agreed that even after the takeover deal, the current American management system would be maintained.
According to international news reports, the takeover price proposed in the negotiations was 50 percent higher than Lehman's book value, and talks failed because KDB felt it was too high.
A senior government official said, "After a review of its account book, we found that its insolvency was serious. Then if insolvency becomes more serious, we would have to pour additional funds. But we concluded that it was too risky for the KDB to take the deal."
KDB kept mum on details of negotiations on grounds that talks are not completely finished and it is also considering investing in two to three other American financial firms.
Min said it was ˇ°normal that several negotiations and ruptures occur before a takeover deal is successfully completed. In the current circumstances, we can't put all our cards on the table."
(englishnews@chosun.com )
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