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approval. They told Min that they wanted a formal "management consultant" style study

performed on the merger before it could be approved.

Fuld arrived in Hong Kong ignorant of all this. The night before their meeting, Min

called Fuld at his hotel and dropped three bombs: First, KDB was working in a

consortium with, among others, the South Korean Hana bank as well as an assortment of

other players, all of which would have to support the deal. Second, the South Korean

government was involved, and wanted the aforementioned study of the deal before

approval. Due to this, there was no way there could be any announcement of a deal

before August 22. Further, should a deal take place, it would have to be structured so that

if Lehman underperformed and the merged entity started to suffer massive drops in share

price, there had to be a way the South Koreans could transform their minority stake into a

controlling majority stake--they would take over Lehman's management. (Structuring an

investment like this--allowing a minority shareholder to assume control of a company

without paying a control premium to the shareholders--could be illegal.)

Fuld was shocked. He thought he'd come to finalize the deal; now he was practically

starting over.

Min was being advised by three parties: C. K. Lee, the president of South Korea's Hana

investment bank; Victor Lewkow of the New York law firm Cleary Gottlieb Steen &

Hamilton; and a tall dark-haired American banker from the New York boutique advisory

firm Perella Weinberg. His name was Gary Barancik.

Fuld asked Min if they could at least announce they were in discussions to do a deal.

When Min made it clear that his government approval process wouldn't allow an

announcement prior to August 22, Fuld asked whether KDB would at least be willing to

announce the following week that discussions between the parties were taking place.

Min, though he had initially indicated that he would consider this, subsequently

concluded that it would be "unwise" to announce discussions before receiving the

government's blessing. He told Fuld no.

Nonetheless, arrangements were made for talks to continue in New York City on August

5, in order to hammer out a term sheet and begin the due diligence on Lehman's business

units, though some on the Lehman team were beginning to doubt that this deal was

viable. "It was just too complicated; it had too many parts," one member of the executive

committee said later.

Min was also starting to have doubts. When the South Koreans landed in New York on

the night of August 2, Min's concern about Lehman's real estate portfolio had grown

exponentially--he wouldn't proceed with the deal until those assets were shipped

elsewhere. As a result, Min turned the proposed agenda for the New York meeting on its

ear, asking that the time be spent reviewing Lehman's real estate assets on the first day,

rather than doing the planned term sheet negotiations and general due diligence. He'd

proceed only if what they found satisfied him.

A representative from KDB called McGee and asked if the Lehman team could bring

Mark Walsh to the next day 's meeting to walk Min's team through the valuations.

Walsh obliged. Min, however, was not satisfied. He expressed his concern about the real

estate marks to market at the end. Fuld was not present during this meeting, but Bart

McDade suggested a way around Min's objections. What if Lehman offered him a stake

in a "CleanCo" that had none of Lehman's commercial or residential real estate? Min

liked this idea. He even said that KDB would pay 1.25 times the book value, so long as

the real estate was removed.

The two groups planned to meet again, at 6 P.M.--without Walsh--and go over a term

sheet for such a deal. That afternoon, however, Fuld called Min twice. Both times he told

him that the original deal was better, that it made more sense for Min to keep the

businesses together. He said, in effect: "There's tremendous opportunity here, given how

depressed