Korea First Bank
Why did the Korean government choose New Bridge Capital over Hong Kong and Shanghai Bank Corporation?
The reason why New Bridge Capital was selected over Hong Kong and Shanghai Bank Corporation (HSBC) is because it offered the government more control. Under the deal, New Bridge was going to give the Korean government a 51% stake in the firm. However, New Bridge would have 100% operational control and could determine the management structure / operations of the bank's daily functions. This was a more attractive offer by allowing the Korean government to easily intervene during times of financial crisis. At the same time, it allowed them to sell a portion of their assets and focus on maintaining the majority of control.
HSBC was going to take 100% ownership over the bank during a period of several years. Initially, the deal called for them purchasing 80% of the shares outright. Over the next four years, the firm would purchase the final 20%. They did have a put back option, which allowed the government to repurchase its entire stake at a premium during this time. Aft this period, HSBC would assume full control and utilize the bank as its own subsidiary.
What motivated them; is New Bridge Capital offered a more lucrative deal to the Korean government. This allowed officials to maintain control and not sell out the entire bank. Instead, they can intervene and monitor its operational control. While at the same time, they are spinning off a percentage of the ownership. This made government officials more comfortable with the deal as they felt that the transaction would partially privatize the entity. Yet, it enabled them to ensure that the bank's activities were not effectively monitored. Under the HSBC proposal, the government would have no control and might not be able to determine what happens within 4 years of the transaction closing.
Was this a good deal for New Bridge Capital? For the Korean government? For Korea First Bank (KFB)? Evaluate the timing of the sale.
This was a good deal for New Bridge Capital. It allowed them to own a stake in a banking asset, which could increase their bottom line results. While at the same time, they could expand and position, to take advantage of new opportunities inside the growing economies of the region. This is something the firm wanted to do, since it established operation inside South Korea in 1994.
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