Excerpted with the permission of the publisher, Wiley from Money Games: The Inside Story of How American Dealmakers Saved Korea’s Most Iconic Bank by Weijian Shan. Copyright © 2021 by Weijian Shan. All rights reserved. This book is available wherever books and eBooks are sold.
Korea First Bank - Newbridge Capital Deal
Exclusive: York Capital to wind down European funds, spin out Asian funds
York Capital Management has decided to focus on longer-duration assets like private equity, private debt and collateralized loan obligations. The firm also plans to wind down its European hedge funds and spin out its Asian fund. Q3 2020 hedge fund letters, conferences and more York announces structural and operational changes York Chairman and CEO Jamie Read More
The day after my press conference, all the major newspapers, domestic and foreign, covered my statements. In general, the reaction was positive. It seemed the press briefing was a success. At least, it managed to crush all the lies about Newbridge being greedy and unreasonable. Even Korea’s finance ministry responded to my press briefing favorably, issuing a statement to say it supported the Newbridge- Korea First Bank (KFB) deal. Only the FSC was unhappy with my press conference, as I heard, although it kept quiet.
Despite the economic pressures faced by Korea First Bank and the sustained top level attention to the deal, the FSC team’s negotiating strategy was very much the same when we sat across the table from them once again on the day of my press conference. Once again things stalled, and it became clear that we wouldn’t make any headway.
As the negotiations broke down, we felt intense pressure to figure out what was going on within the government. To do so we had engaged a New York–based advisory firm to help us. Its two principals, whom I will not name, were said to be well versed and well connected with Seoul’s political scene. They imbued an air of secrecy, intrigue, and paranoia in our minds, regaling us with tales of scheming as they described the political factions that were fighting for or against the reform agenda of President Dae-jung Kim.
They also told us that our phones and fax lines were bugged and that the government negotiators would know of any strategies or gambits we had discussed on internal conference calls. The hotel phones and our mobile phones were equally unsafe. After this, we were careful not to discuss confidential information over unsecured lines. Unfortunately, that left us without any secure means of communication, other than running out to find a public phone to make calls. I remember a few times Paul Chen had to run out in the rain to a phone booth across the street from the hotel to make a confidential call. All we could do was to minimize the risk of leaks by not saying much in our calls and memos until we were out of Korea.
Our advisors told us that South Korea’s intelligence apparatus not only listened to our conversations but also had a codename for each of us. David Bonderman, apparently, was known by the codename “Kim Chee,” after Kimchi, the spicy pickled cabbage found in every Korean kitchen. In order to keep our secrets, our advisors gave each of us a codename to use. They even assigned codenames for us to use for each of them. One advisor’s codename was “Tall Guy” and the other was “Short Guy.” I was “Thin Guy.” Dan Carroll was “Handsome Guy.” Even with all these measures of secrecy, I did not exactly feel like James Bond. If these conspiracy theories were true, I thought, Korean intelligence agents were likely much more creative and professional than we were. Our codenames weren’t going to fool anyone. If you were to put us all in a lineup, my seven-year-old daughter would easily tell who was Tall Guy, Short Guy, Thin Guy, and Handsome Guy. If anything, it was probably easier to identify us by our codenames than by our real names.
Tall Guy and Short Guy brought a couple of people to see us. They claimed to know what was going on within the government and that they could connect us with those who could influence decision making in the National Assembly and the Blue House. But I never knew whether what the visitors told us was true. I did visit some Assembly representatives and Blue House officials, as arranged by Tall Guy and Short Guy, to brief them on the deal status and on our plans for Korea First Bank. I had no idea if those visits did any good. But I thought they were useful nonetheless because if we wanted to educate the public by briefing the press from time to time, we might as well do the same with politicians. At this point, the Korea First Bank deal was drawing so much public attention that it felt like Korea’s national pastime. We did not know who was for or against the deal, but it was prudent to win as many friends and as much support and sympathy for it as possible.
In the days running up to the expiration of exclusivity, Tall Guy and Short Guy repeatedly told us that ours was a done deal. They even had specific predictions for when the government would sign, but I had my doubts. There was no hint of willingness across the negotiation table, and there were no documents to sign. Each time, the closing date that Tall Guy and Short Guy identified came and went without a deal, and each time our advisors found some plausible explanation for the failure.
I spoke with Short Guy on May 2, 1999, hours before the midnight expiration of our exclusivity. He continued to insist it was a “done deal,” but he warned me: “The deal cannot be won at the table, but it can be lost at the table.” I did not really think about what he said at the time, but in retrospect I realized the import of what he meant. If we completed the deal, I would not be able to take any credit, because “the deal cannot be won at the table.” But if the deal did not happen, it would be all my fault, because the deal “can be lost at the table.” As I wrote in my notebook later, “so the strategy is to hold the line and wait for things to work out behind the scenes.”
The May 2 Deadline
The two days leading up to the May 2 deadline were unnerving and somewhat confusing. The FSC had flatly rejected our most recent proposal and, in fact, widened the gap by proposing to mark down the value of the bank’s deposits by 1.5 trillion won (about $1.2 billion).
We did not know what to make of these theatrics. The FSC had pushed their position so far from our proposals that it seemed impossible that we would find a compromise. It seemed, in fact, like the FSC team had no intention of trying to bridge our two positions. Meanwhile, other bidders began circling: Regent Pacific, a Hong Kong–based hedge fund, publicly announced on May 1 that it would send in an offer with much better terms than Newbridge’s after our exclusivity expired.
After strategizing among ourselves, we decided to let Mike O’Hanlon of Lehman lead the discussions on May 1. The hope was that the FSC team would be a bit more relaxed and wouldn’t feel as if each comment during the negotiation was a statement for the record.
The strategy achieved some measure of success; the FSC side did seem a bit less tense when they felt that they were dealing with a slightly neutral third party. But they remained as unyielding as ever and continued to demand that we accept their April 22 proposal, which we had already rejected. O’Hanlon informed them we could only negotiate on the basis of our most recent proposal, made on April 27. The gap between those terms and the ones that the FSC had proposed in earlier negotiations was relatively narrow and seemed easy to bridge. Left unsaid was how far the FSC had moved away from its own bargaining position in the intervening month. Before we wrapped up for the day, O’Hanlon left on the table a compromise offer, which we followed up on in writing later that day.
That afternoon, with some eight hours remaining before the deadline, the entire Newbridge and Lehman team went to the FSC’s office for final meeting. We had learned from a source there that Chairman Lee had attended every internal meeting held that day on this transaction. This was the first time we heard that the negotiation team on the other side might have received some signal from the top.
An Extension Of Exclusivity
Before we finished exchanging pleasantries, I was summoned to Noh’s office. O’Hanlon and I went together. O’Hanlon briefly explained our new proposal to Noh, and Noh replied that the government would need some time to review it and give us feedback. O’Hanlon then brought up the subject of an extension of exclusivity. Noh immediately asked if that was an official request.
“I could make it an official request,” I replied. Noh asked his staff to note down the request and asked me to send it to him in writing. Noh’s body language telegraphed that he had been trying to use the pending expiration of exclusivity as leverage against us, to force us to accept his proposal. He probably had expected us to capitulate right before the expiration. For that reason, I thought there was no way he would want to extend the exclusivity for us.
That was as far as we got with Noh on that day. I sent him a request for an extension of exclusivity for 10 days, to agree on major terms to be incorporated into a new MOU, followed by three weeks for the documentation and to close “as soon as practicable.”
Then we waited…