Lehman Brothers Holdings Inc spurned Korea Development Bank’s offer of $6.40 a share for a controlling stake in the weeks preceding its bankruptcy, the Korean bank’s Chief Executive Officer Min Euoo Sung said.
The bid would have valued Lehman’s broker-dealer operations and asset management unit at about 5 trillion won ($4.3 billion), Min told lawmakers in Seoul today. The price KDB proposed included an additional 30 percent premium foar management control, he said, without disclosing how large a stake was sought.
Lehman, which traded as high as $66 this year, wanted $17.50 per share, causing the talks to collapse, Min said. After KDB walked away, Lehman Chief Executive Officer Richard Fuld sought unsuccessfully to sell the 158-year-old securities firm to Barclays Plc and Bank of America Corp., and ended up filing the biggest bankruptcy in history.
“It would have been a favorable deal for us,” said Min, 54. Under the proposed deal, KDB would have taken over Lehman’s “good assets” in February 2009 after spinning off poor assets into a “bad company,” he said.
At $6.40 per share, Min’s offer would have valued Lehman at $4.4 billion, based on the firm’s 694.4 million shares outstanding. Min said Lehman was trading at between $15 and $17 during the talks.
“It’s difficult to assess whether KDB’s proposed price was reasonable or not at this point, given that Lehman could have taken a path to recovery after KDB took over,” said Mo Jae Sung, who helps manage the equivalent of $1 billion at Hanwha Investment Trust Management Co. in Seoul. “I doubt Lehman would have gone bankrupt if KDB had bought it at whatever price.”
‘Horrible’ Feeling: Lehman shares tumbled 45 per cent to $7.79 on September 9, amid reports that talks were collapsing. The stock fell another 6.9 per cent the following day, after KDB confirmed that discussions with Lehman had ended.
Yesterday, two days after Lehman’s bankruptcy filing, Barclays agreed to pay $250 million for Lehman’s North American investment-banking business and another $1.5 billion for the firm’s New York headquarters and two data centers.
Fuld, 62, told Lehman employees in a memo distributed internally that he feels “horrible” for what they’ve had to endure. Fuld sold shares that were worth $247 million a year and a half ago for less than $500,000 this week.
Min, a former Lehman executive, took the helm at KDB in June with a goal to make it Asia's third-biggest bank within five years. The state bank plans to sell some of its shares to the public next year.
Min gets scolded: Min came under fire today for attempting what South Korean lawmaker Hong Jae Hyong of the opposition Democratic Party called a “ridiculous” deal. “You caused Korean banks to lose face globally,” Hong said at a parliamentary session.
“Min was overzealous and unrealistic” in pursuing the Lehman takeover, Jun Kwang Woo, chairman of South Korea's Financial Services Commission, told a parliamentary session yesterday in Seoul. “The possibility of a Lehman deal wasn't big from the very beginning.”
The KDB CEO's intention was “still genuine,” said Jun, who worked with Min at Woori Finance Holdings Co in Seoul and recommended he lead KDB. Chief executive officers at state-run agencies are appointed by the country’s president.
“You can’t penalise Min for having considered the Lehman purchase when buying a large global bank is the only way for KDB to become a global investment bank,” said Kim Sang Jo, a professor of international trade at Hansung University in Seoul. “The government should delegate full decision power to the CEO if Korea is really serious about cultivating a global bank.”
Lehman Holdings: The government plans to set up a holding company for KDB and its affiliates by the end of this year and sell a 49 per cent stake in the parent company by 2010. The remaining 51 per cent stake will be sold by 2012 under President Lee Myung Bak's drive to sell state assets in financial firms to make the industry more market-friendly.
Min was also questioned today by lawmakers on his holdings of stock options in Lehman. Min, who headed Lehman's Seoul branch before joining KDB, said he was granted about 59,000 Lehman shares in “stock awards.”
“I told the board that I would give up the stock awards if the deal successfully closed,” Min said today. “I believe I've done everything I could in preventing any conflict of interest.”
