Min, however, was undeterred; he had grandiose visions. At a dinner with his new colleagues, he sang a song called “Leopard in Mt. Kilimanjaro” as an expression of his desire to be a powerful force in the world of finance. The Lehman situation presented the first major opportunity to achieve that goal. Before he had even formally started his job, Min had approached his friend Kunho about doing a deal. Kunho had in turn brought Jesse Bhattal, the debonair head of Lehman’s Asia-Pacific operations, based in Tokyo, into the talks, and the idea started to gain momentum.
What choice did Fuld have but to play this situation out? In less than a week, on June 9, the firm would be announcing its first quarterly loss—a staggering $2.8 billion—since American Express spun it off. The stock was already down 18 percent in three days. Fuld had to find capital, and at this point, he would try any avenue he could. He had been pressing his old friend Hank Greenberg, the former chairman of AIG, to put money into the company, as well as trying to get an investment from General Electric, but he couldn’t be certain that either would come through.
Certainly, Fuld did have some reason to believe that a constructive agreement might be negotiated with the Koreans. The Monday before the Lehman team had left for Asia, David Goldfarb, Fuld’s chief strategy officer, had raised his boss’s expectations.
“Korea situation sounds promising,” Goldfarb wrote in an e-mail that he also sent to Gregory. “They really are looking to restructure and open up financial services and seem to want anchor event to initiate the effort, which could be us. I still prefer a Hank [Greenberg] or GE solution, but if that is not there, we could make this strategically based as well.
“Between Kunho and ES’s [Min’s] relationship it feels this could become real. If we did raise $5 billion, I like the idea of aggressively going into the market and spending 2 of the 5 in buying back lots of stock (and hurting Einhorn bad!!). Lots to do on this, been speaking to Jesse and Kunho. Sounds like the Koreans are serious on this and are looking to do something aggressive. Could be interesting timing for them, to get some attention away from faster growth Asian economies. Could be interesting, but as we know these thing often don’t go further then the rhetoric.”
On June 1 a small team of Lehman bankers had headed to New Jersey’s Teterboro Airport and set off for Korea in the firm’s Gulfstream. The senior person aboard, Tom Russo, Lehman’s chief legal officer, had little deal-making experience, but as one of Fuld’s confidants, he could serve as a trusted pair of eyes and ears. Mark Shafir, the firm’s head of global mergers and acquisitions (and the brother of Robert Shafir, whom Gregory had unceremoniously forced to quit), was the lead deal banker, along with Brad Whitman, a talented acquisitions expert who had spent most of his career merging the nation’s far-flung telecommunications firms into a handful of powerful players. Completing the group were Larry Wieseneck, the firm’s head of global finance, and lawyer Jay Clayton of Sullivan & Cromwell. They would meet Kunho and Bhattal when they got there.
With a stop for refueling in Anchorage, the jet made the trip in nineteen hours, and on arrival the exhausted Lehman contingent took a fleet of cars to their hotel on the outskirts of Seoul. The Shilla was a peculiar place with a lobby that looked like a spaceship, but at least it had a bar.
The first meeting in Seoul involved only lower-level officials of KDB and Hana Financial, which was also considering an investment. Shafir and Whitman could tell immediately that this was not a deal that was likely to happen. Neither Korean firm had brought along lawyers or hired its own U.S. advisers. And Min, who had not yet officially started as chief executive of KDB, could not even take part in the talks.
“This is bullshit,” Wieseneck exclaimed after the initial session ended, having served little purpose other than to make introductions. Even as the talks progressed, the Lehman team could hardly tell to whom they were speaking. At one point Russo engaged in what he thought was a productive exchange with an individual who turned out to be an outside accountant. “Relying on Kunho is like bottom of the ninth, two outs, in the World Series,” Shafir complained to his American colleagues the first night in the bar, “and you send up a guy to the plate who hasn’t gotten a hit all year.”
Lehman had wanted to start discussions at $40 a share, but by the end of the first day the stock was at $30. Nobody—not even this group of deal-hungry Koreans—was going to pay a 33 percent premium. The whole affair became increasingly unreal.
No food was served at the meetings, so the Lehman bankers were starving by the time they got back to their hotel, where the meals were generally dreadful. The only palatable item they could find on the menu was tuna, which most of them ate every day of their stay.
But neither the subpar accommodations nor the Koreans’ erratic behavior could dent Russo’s enthusiasm: He was going to make this happen. “They’re going to do this deal,” he told his colleagues, supported by Kunho and Bhattal. “They’re going to put in $10 billion. They’re going to make their balance sheet available for loans.”
No, they aren’t, thought Shafir. They aren’t going to do anything of the kind.
Sitting on a hotel room bed crowded around the speakerphone, the group called Fuld back in New York, with Russo leading the conversation. “Dick, I’m feeling very good about it,” Russo enthused. “I think we have a 70 percent chance of getting something done with these guys.”
Fuld’s delight at the news, however, was short-lived. The group returned to New York empty-handed on June 5; efforts to come up with even a rudimentary term sheet had completely failed. The Koreans had obviously been deterred by Lehman’s cratering stock and simply may not have had the wherewithal to bring about such a major piece of business. Even Russo had lost confidence. “We’re not going to get a deal with these yoyos,” he told Fuld.
Moments after hearing the news, Fuld, frustrated as ever, screamed down the hall at Steven Berkenfeld, a member of the firm’s executive committee.
“Were you the one who said you can’t trust the Koreans?” he asked.
“I don’t think I phrased it that way,” Berkenfeld said.
“Yes, you did,” Fuld said. “And you were right.”
The Korean deal wouldn’t go away quietly, though. A few days later, Min called Fuld and insisted he still wanted to get something done. Fuld figured the only way it was remotely possible was if the Koreans hired a real adviser. So he called up Joseph Perella, the mergers and acquisitions guru who had recently started a new firm, Perella Weinberg Partners.
“Listen, I’ve got something for you,” Fuld told Perella. “You’re going to get a call from ES. Do you know him? He used to work for me.”
Fuld was explicit about what he needed out of the deal. “We’re trading at about $25. Our book value is $32. We need a premium, so we’d take $35 to $40.”
Perella, who assigned the project to his colleague Gary Barancik, didn’t think the odds were good. KDB was a national institution with what seemed to him to be a local charter. They had no business branching out with a risky international deal. “It’s like the Long Island energy utility trying to buy something in Russia,” he told Barancik.