GM to ink Daewoo deal Friday


GM is likely to pass on Bupyong in favor of Daewoo's more modern operations but may make cars there under contract

By Alex Frew McMillan
CNN Hong Kong

SEOUL, South Korea (CNN) -- General Motors is expected to finally put pen to paper on its deal to buy bankrupt Daewoo Motor on Friday.

The months-long talks were set to wrap last week. But the U.S. terrorist attacks disrupted writing the fine print.

A signing ceremony is now slated for 10:00 a.m. local time (0100 GMT) on Friday, at the headquarters of Korea Development Bank, Daewoo's main creditor.

Discussions to sell Daewoo have been dragging on for two years, including a failed attempt to sell it to Ford. GM entered the running last October.

South Korea's third-largest car maker lumbered into receivership in November, unable to withstand its now-$17 billion debt load.

GM is thought to be paying $400 million, with creditors chipping in $200 million. But it's unclear how much of Daewoo, and its debt, the Detroit car giant is taking on.

It is likely to sign a memorandum of understanding setting up a new joint venture company to absorb Daewoo. It would own two-thirds of the joint venture., with creditors owning the rest. The agreement would be non-bonding.

Daewoo's Bupyong plant, its biggest and oldest, has been the main sticking point of the negotiations.

Oldest plant left out

It was built in 1972, meaning it is less efficient than Daewoo's other operations. It was also the hotbed of unrest after Daewoo laid off 1,750 workers there in February.

The Bupyong plant is likely to be excluded, with GM taking on Daewoo's other two plants.

Daewoo's unions have promised to make it impossible for GM to sell cars in Korea if GM doesn't take Bupyong. Instead, GM is expected to agree to make cars there under contract for six years.

The Korea Times reports GM will also buy the research and development operations there and guarantee an as-yet unspecified number of jobs.

A beachhead to China

Daewoo is essentially the only entry-point for overseas carmakers interested in South Korea. Hyundai Motor, the nations No. 1 carmaker, is part-owned by DaimlerChrysler. Hyundai owns around 46 percent of No. 2 Kia.

Analysts say GM is in any case more interested in using Daewoo's Korean facilities to make cars for the burgeoning Chinese market, rather than selling cars in South Korea.

Unlike other multinational carmakers, GM does not have a coherent strategy for its investments in Asia, experts say. GM has instead bought a mishmash of stakes and subsidiaries.

But its opportunism has seen it pick up some bargain-priced operations. Daewoo is expected to go at a fire-sale price.

Korea pushing reforms

South Korea has won praise for pushing ahead with its corporate reforms. It was one of the heaviest hit nations in the Asian financial crisis.

The sudden escalation of the size of dollar debts when the won crumbled in 1997 was a major cause of Daewoo's collapse, compounding operational problems.

The International Monetary Fund was initially critical of the pace of change in South Korea. But it has praised the country's recent efforts to work out its business problems.

The government had pushed creditors and General Motors to finish the Daewoo talks in September. Finance Minister Jin Nyum wanted resolution to remove uncertainty from South Korea's stock market.

The Kospi lost 1.3 percent on Thursday, to close at 480.27. But Daewoo Motor Sales, the listed sales subsidiary of unlisted Daewoo, rose 3.8 percent to 3,510 won.

South Korea already pushed through a similar restructuring to sell management control of three Hyundai financial companies, to a consortium led by insurer American International Group.

That sale hit an after-the-fact hitch, though. After the Korean government championed the deal in a press conference, problems emerged over the price.

That haggling was ultimately resolved, with the American team admitting there may have been a miscommunication. The team is allowing minority shareholders to buy in at the same price it is paying.

South Korea has held up better than many Asian nations in the current downturn as a result of government reforms and corporate restructurings, economists say.