The yo-yo that is Lehman Brothers’ stock took another spill before the market opened on Monday, after a top South Korean regulator threw cold water on the idea of a state bank buying the battle-scarred Wall Street warrior. Financial Services Commission Chairman Jun Kwang-woo told reporters Korea Development Bank (KDB) should be a “cheerleader” and let local private banks take the lead in any such purchase. KDB’s interest lit a rocket under Lehman’s shares on Friday. When asked about the status of KDB’s possible interest in Lehman Jun said: “That would be an international marriage. Would you get married just after one or two blind dates?” A couple of blind dates might be a step up from the shot-gun buyouts that South Korea’s banks faced after the Asia crisis.

Canada’s Precision Drilling Trust will buy U.S. driller Grey Wolf for $2 billion in cash and stock, creating one of the largest North American oil and gas rig operators. The announcement comes a month after Grey Wolf shareholders voted down a proposed purchase of well-servicing company Basic Energy Services. Precision Drilling, Canada’s largest oil and gas driller, first made an unsolicited purchase offer for Grey Wolf in June. News that a deal had been struck emerged on Sunday. Based on financial results through June, the combined companies will have annual revenue of $1.8 billion.

Germany’s Commerzbank could buy insurer Allianz’s Dresdner Bank possibly by the end of this month, according to a source familiar with the situation at the bank. German weekly Welt am Sonntag said an agreement between the two was possible within the coming week. The two companies had agreed on the basic principles of the transaction, according to the paper, which said Commerzbank would buy Dresdner for slightly more than 9 billion euros ($13.38 billion) and Allianz would vouch for writedowns on the balance sheet of Dresdner of up to 1 billion euros. The sums were still being negotiated. Allianz would have a stake of slightly less than 30 percent in the merged bank, the report also said.

Australia has approved Chinese aluminum giant Chinalco’s recent purchase of a minority stake in Anglo-Australian miner Rio Tinto, but warned the Chinese firm against buying more shares without prior approval. State-owned Aluminium Corp of China (Chinalco), backed by U.S. peer Alcoa, began amassing shares this year with the aim of taking up to 14.9 percent of Rio, the target of a $127 billion takeover bid from rival BHP Billiton. Treasurer Wayne Swan said Chinalco had already vowed not to raise its stake above 14.99 percent without receiving fresh government approval and, secondly, not to seek to appoint a director to Rio Tinto’s board. Rio Tinto is at the center of a tug-of-war that reflects China’s anxiety over BHP Billiton’s proposed all-share bid for Rio, which would create a titan unrivaled in its degree of control over a wide range of industrial commodities. Rio is a major aluminum producer and both it and BHP are global suppliers of copper, but China’s biggest concern about the takeover bid surrounds iron ore, which is used in steel-making.

Other deals of the day:

* Japanese brewer Kirin Holdings is expanding its food business in Australia through unit National Foods’ $780 million acquisition of Dairy Farmers, helping it diversify away from a shrinking domestic beer market as Japan’s population ages.

* Lufthansa has formally announced its interest in acquiring a stake on offer in Austrian Airlines, a spokesman for the German carrier said. OeIAG is offering its 43 percent share in Austrian, worth around 157 million euros ($233.4 million), but said the size of the stake sold would depend on preserving an Austrian group of core shareholders owning 25 percent between them.

* Irish food group Glanbia said it would spend $315 million to buy Optimum Nutrition Inc, a U.S. maker of supplements for body builders, which will use by-products of its cheese manufacturing.

* Singapore Telecommunications said it has bought a 60 percent stake in Singapore Computer Systems for S$140 million ($99 million) as it seeks to boost its IT business.

* Norwegian shipping group DOF ASA said that uncertainty in the financial market had forced it to re-evaluate a planned buyout of offshore services group DOF Subsea.

* MLP Chief Executive Uwe Schroeder-Wildberg was quoted by Swiss finance newspaper Cash Daily as saying he believes Swiss Life’s plan to take over the German financial adviser would fail.

King Pharmaceuticals Inc’s $1.4 billion offer to buy Alpharma Inc follows a wave of unsolicited bids in the otherwise weak merger market.

So far this year, there have been 50 unsolicited bids, totalling $137.3 billion worldwide, up from 19 deals totaling $30.2 billion for the same period a year ago, according to Thomson Reuters data.

The amount of unsolicited or hostile takeover bids has increased as weak stock prices have enticed large corporations that have the luxury of cash on their books or the ability to raise funding despite tight credit markets.

Other unsolicited offers this year included InBev NV’s successful battle for Budweiser brewer Anheuser-Busch Cos Inc, and Microsoft Corp’s abandoned effort to buy Yahoo Inc.

King warned it would make a hostile bid if Alpharma refused to accept its bid. King wants to expand its pain drug business through the acquisition of Alpharma, which makes the pain drug Kadian and pain patch Flector, as well as plus products to treat animals.

So far this year, there have been 9 hostile bids valued at $12 billion, compared with 6 bids valued at $102.2 billion at this point last year, according to Thomson Reuters.

It looks like King may have a battle ahead of itself as Alpharma said the offer was not in the best interest of its shareholders. The proposal was essentitally identical to two previous offers by King that Alpharma already rebuffed, Alpharma said.

Alpharma, however, said it would be open to discussions for a deal at a higher price. Analysts said Alpharma’s hint that it would consider more money puts the company in play for other suitors to emerge and potentially creates a costly bidding war for King.

Singapore’s Temasek made clear how bullish it is on Merrill Lynch in a Bloomberg TV interview, expressing great confidence in CEO John Thain. The news service reported that the Singapore wealth fund has U.S. clearance to raise its stake in the brokerage to as much as 14 percent. That would be worth roughly $1.7 billion on the open market. Though less if they issued new shares, it would certainly help Merrill deal with the $5.7 billion in write-downs it said it would take in the third quarter, and would probably be worth even more as a sign of steady capital support from its biggest share holder.

Such lifelines are likely to keep pumping funds into struggling Western banks, according to a regional executive at one of the world’s biggest institutional money managers. Hon Cheung, regional director of the Official Institutions Group in Asia at State Street Global Advisors said he expects the funds increasingly to adopt passive investment approaches, given the need to move large amounts of money without disrupting markets. “Their purpose is not to support the U.S. taxpayer or the U.S. economy or to ensure stable global markets. If by doing that, they get a side benefit that’s great. But their principal job is to benefit the stakeholders,” said Cheung. And as these sovereign wealth funds aren’t even really beholden to share holders, they may have stomach for even more stunning losses.

Lehman Brothers has asked three private equity firms to remain in the bidding for its asset management arm even though the investment bank has yet decide on whether to sell the unit, the Financial Times reported. Kohlberg Kravis Roberts, Hellman & Friedman and Bain Capital have been told by Lehman that their bids are high enough to go forward, the paper said, citing people familiar with the matter. Although Lehman has not reached a decision, it has been soliciting bids from private equity firms to gauge interest in its asset management arm, which includes Neuberger Berman, the fund manager, and minority stakes in several hedge funds.

Other deals of the day:

* Steelmaker POSCO and Hyundai Heavy Industries officially expressed interest in acquiring a majority stake in world No. 3 shipyard Daewoo Shipbuilding & Marine Engineering estimated at up to $8 billion.

* ConocoPhillips is expected to sell the remainder of its 600 company-owned gasoline stations to PetroSun West for $800 million, the Wall Street Journal said.

* Danish shipping and oil group A.P. Moller-Maersk said it was launching a bid worth 3.62 billion Swedish crowns ($569 million) for shipping company Brostrom.

* Sweden-based private equity firm EQT said it had sold its remaining stake in paper products maker Duni AB for an undisclosed sum.

* British market research group Taylor Nelson Sofres said it continued to oppose a hostile takeover bid from WPP despite preferred suitor GfK giving up its takeover attempt.

* Commonwealth Bank of Australia, the country’s second largest bank by assets, was unlikely to buy Indonesia’s Bank Ekonomi Raharja, an industry source told Reuters.

* Leading Turkish conglomerate Sabanci Holding wants to find a partner for its insurance unit Aksigorta rather than selling it, said group chairwoman Guler Sabanci.

* AIM-listed Proventec Plc, which provides specialist steam cleaning and coatings technologies, said it has acquired a 60 percent stake in German engineering company Frank for an undisclosed sum.

* Singapore-based KOP Capital, controlled by the emirate-owned Dubai Group, will buy a 50 percent stake in European hotel chain Stein Group for $250 million, and spend about the same amount on new hotels in Asia.

* Private equity firm 3i Group may invest 8-10 billion rupees ($183-$229 million) in a south Indian port operator for a stake of up to 26 percent, the Mint newspaper said, citing an official at the Indian firm.

* New Zealand grocery co-operative Foodstuffs will not appeal a court-imposed ban on it bidding for New Zealand’s largest-listed retailer, The Warehouse Group, the company said.

The federal government should ditch the hybrid structure of mortgage giants Fannie Mae and Freddie Mac and fully back them with taxpayer funds, said New Jersey governor Jon Corzine, former CEO of Goldman Sachs.

“I don’t think we can continue with the schizophrenic view that we have today, sort of part public company, part private company, where the leaders of the company do well when things are going well but then the government and the public and the taxpayer has to bail them out when it goes bad,” he said.

This report is by Corbett B. Daly, Washington bureau chief for Thomson Reuters Markets.

PE Hub’s Dan Primack writes:

Mitt Romney is probably just days away from being named John McCain’s running mate, and the Democrats are already taking shots based on his time running Bain Capital. During a press conference earlier today in Denver, Obama campaign manager David Plouffe referred to the former buyout kingpin as a “job killing machine in business” who “has been proficient at using tax havens in places like the Cayman Islands that Americans have become increasingly tired of.”

It’s certainly true that Bain laid off portfolio company employees during Romney’s tenue. It’s also certainly true that Bain hired portfolio company employees during Romney’s tenue (particularly at the earlier-stage companies).

So Plouffe was only telling a half-truth, although it’s one we should expect to hear over and over again. This will be particularly true if Romney’s people keep avoiding any actual discussion of Bain Capital, as his spokesman did in response to Plouffe’s comments.

As I’ve written before, I’m thrilled by the prospect of Romney as a vice presidential candidate. Not because of my political biases, but because it gives me something to write about for the next few months. But his former private equity colleagues should be very nervous about what his candidacy would mean for their own reputations and future regulation. The industry was dragged through the mud most of last year, and has largely been forgotten ever since (except in Michigan, thanks to Cerberus/Chrysler). A McCain-Romney ticket will bring it all back with a vengeance.

The spate of private equity deals falling apart after the buyer got cold feet has slowed to a trickle. But one recent buyers’ remorse is noteworthy if only for the unusually large break-up fee.

Gilat, an Israel-based technology company which makes satellite-based communications networks, struck a deal in March to be bought by a consortium of private equity investors including Gores Group for $11.40 a share, or $475 million.

Monday, that looked dicey after Gilat put out an announcement saying that the buyers made a number of new verbal proposals which “were substantially different from the definitive agreement”.

“These proposals were rejected by the Company’s board of directors after finding they were not in the best interest of the Company’s shareholders,” the statement read. “The company has informed the purchasers that they have 72 hours (ie Wednesday) to complete the definitive merger agreement. If the conditions are not met, Gilat shall seek all remedies at its disposal including legal action.”

What those proposals are is difficult to say because Gores as yet has made no announcement giving its side of the story. A call to Los Angeles-based Gores was not immediately returned.

If the private equity consortium ends up having to pay the termination fee, which Gilat says is $47.3 million, it will be a bitter pill to swallow — adding up to about 10 percent of the total deal price — substantially higher than the typical 2-3 percent.