Union Files to Block $4.1B Sale of Korea Exchange Bank

Korea Exchange Bank’s labor union has filed suit to block the $4.1 billion sale of the bank to Hana Financial Group, Reuters reported. In the lawsuit, the union takes issue with a dividend that would be paid to U.S. private equity firm Lone Star, which owns the 51 percent stake in the bank, Reuters said. Lone Star paid $1.2 billion for its stake in 2003, and could earn up to $246 million in dividends, on top of the acquisition price.

(Reuters) – Korea Exchange Bank’s labour union has filed a lawsuit to block Hana Financial Group’s acquisition of a majority stake in the South Korean bank, a move meant to scrap the $4.1 billion deal.

Labour union lawsuits or protests aimed at corporate acquisitions are common, as rank and file workers fear job and wage cuts as a result of the takeover. Union resistance rarely impedes an acquisition, with lawsuits normally the last resort to block a deal.

In the lawsuit filed on Monday, KEB’s union takes aim at the dividend set to be paid to the U.S. private equity firm, Lone Star , that owns the 51 percent stake.

On Monday, Hana said Lone Star could earn up to $246 million from KEB’s dividend on top of the $4.1 billion.

The lawsuit against Hana, its chief executive and other top executives, argues that Hana failed to disclose the additional payment deal and was engaged in breach of duty by failing to conduct thorough due diligence on KEB. “Hana agreed to put a cap on dividend payout that Lone Star can receive based on the performance of this quarter at 850 won a share,” a Hana spokesman said. Hana’s last minute emergence in the auction caught rival suitor Australia and New Zealand Banking Group by surprise, having done due diligence on KEB since August. KEB’s union has expressed its preference in having ANZ purchase the stake. [ID:nSGE6AO059]

Lone Star has retrieved most of its $1.2 billion investment made in 2003 mainly through KEB’s high dividends and changed KEB’s dividend payout period to a quarterly basis this year from the previous annual payment scheme.

Its previous sales attempts to HSBC and Kookmin Bank had been hampered by a tax probe and a raid by government prosecutors on its Seoul office due to legal disputes over its Korean activities.

Hana’s purchase of KEB, South Korea’s biggest foreign exchange bank, will lift it the country’s third-largest bank by assets, replacing Shinhan Financial Group .

Shares in Hana closed up 2.6 percent and KEB fell 0.9 percent in a broader market down 0.2 percent. ($1=1136.5 Won) (Reporting by Jumin Park; Editing by Anshuman Daga)