Hana Financial says to buy KEB for up to $4.1 billion

Hana said it has offered around 4.65 and 4.75 trillion won for the KEB shares, or a 15-18 percent premium to KEB's closing share price on Wednesday, in a deal that would help U.S. private equity firm Lone Star LS.UL finally exit from the bank after two failed attempts over the past nearly five years.

Hana chairman Kim Seung-yu is en route to London to sign a final deal with Lone Star on Thursday.

An Australia and New Zealand Banking Group (ANZ) spokesman said it will reveal its stand on KEB after the deal is signed, but the Australian group has no plan to outbid Hana, sources have said earlier.

Hana's announcement on the KEB takeover, which marks the country's biggest banking acquisition deal, comes only two days before South Korea ends the first round of a $6 billion-plus stake auction for Woori Finance Holdings (053000.KS) on Friday.

The country's No.4 financial services group by assets said in a filing to the Korea Exchange that it would buy KEB shares within 10 business days of regulatory approval.

PRIVATE EQUITY FUNDING

As Hana steered its focus to KEB from bigger Woori, analysts say the KEB-Hana combination will be more beneficial to Hana than a merger with Woori, in terms of their business portfolio and the size of the bid target.

Hana gave no further details on its funding plan, but sources said the bank was in preliminary talks with private equity firms, including Carlyle Group CYL.UL and Kohlberg Kravis Roberts & Co (KKR.N) to fund its acquisition.

The KEB deal would help Hana displace Shinhan Financial Group (055550.KS) as the country's No.3 financial group with more than 300 trillion won in assets.

"Lone Star has agreed because the market favors the deal," a Hana official told Reuters after the board meeting.

ANZ was considering paying a maximum of $4.5 billion for 57 percent stake held by Lone Star and Korean bank KEXIM, close to both book and market value, the sources have said.

KEB's senior management called for Lone Star to drop its talks with Hana and seek a deal with ANZ. KEB's labor union is protesting against a deal with Hana as it is concerned about a massive restructuring in the aftermath of merger.

Hana Chairman Kim added that Hana will keep KEB as a separate entity initially.

Dallas-based Lone Star bought a 51 percent stake in KEB for $1.2 billion in 2003. Previous attempts by the private equity firm to sell its holding -- to Kookmin Bank for $7.3 billion in 2006 and to HSBC for $6.3 billion in 2008 -- failed due to pricing and legal disputes over Lone Star's South Korean investment activities.

Shares of Hana jumped as much as 8.2 percent to one-year highs on Wednesday before closing up 7.3 percent, rising for the eighth consecutive session.

Shares in Korea Exchange Bank fell 0.8 percent in a flat market .KS11, which was initially pressured by North Korea's shelling of a South Korean island in one of the heaviest attacks on the South in nearly six decades. ($1=1162.0 Won) (Additional reporting by Miyoung Kim in SEOUL, Michael Smith and Denny Thomas in HONG KONG and Narayanan Somasundaram in SYDNEY; Editing by Muralikumar Anantharaman)