GM agrees to take over Daewoo Motor
By Sang-Hun Choe
Associated Press
SEOUL, South Korea — After a year of negotiations, General Motors Corp. today signed a nonbinding agreement to acquire bankrupt Daewoo Motor Co. of South Korea.
The "memorandum of understanding," signed in Seoul with creditors of Daewoo and Daewoo's management, was a boost for South Korea's economic reform program and gives the U.S. auto giant a stepping stone into the Asian market.
GM said it planned to sign a binding agreement before year's end after a final due diligence.
Under the deal, GM will take over two of three local Daewoo Motor plants as well as 22 overseas subsidiaries, along with manufacturing facilities in Egypt and Vietnam.
The deal did not cover Daewoo's largest plant at Bupyong west of Seoul, which experts say is inefficient. The facility will remain open, providing vehicles, engines and other components to the new company.
GM said there was potential to buy the Bupyong facility at some point in the future.
GM said the new company will have annual revenues of $5 billion.
The first step of the deal will be the establishment of a company to take over Daewoo. GM will invest $400 million in the company for an ownership stake of 67 percent.
Daewoo's creditors will provide $197 million, or 33 percent, of the cost of setting up the new company.
The new company will issue $1.2 billion worth of preferred stocks to redeem creditors, and takeover $320 million of debt incurred by Daewoo's overseas operations.
Daewoo's creditors will provide long-term funds of up to $2 billion to the new company, according to the agreement.
The deal also calls for the South Korean government to provide tax breaks for the new company, lowering corporate tax rates and exempting it from car excise taxes for up to six months.
The state-run Korea Development Bank, Daewoo Motor's main creditor, led the negotiations between GM and Daewoo's lenders.
President Kim Dae-jung's government has been struggling to unload Daewoo Motor, which expanded recklessly on borrowed money during the boom years of the 1980s and the early 1990s. It nearly collapsed with the onset of the 1997-1998 Asian financial crisis.
Through its banks, the government funneled billions of dollars to keep the troubled carmaker afloat. Kim had said the sale of Daewoo Motor would be a big step forward in restructuring his country's debt-ridden industries.
Daewoo Motor can produce 2 million vehicles a year at 11 plants at home and abroad. Despite its debts, the company can help a potential investor break into South Korea's closed market and advance into China, one of the key targets for future growth for American auto giants.
Daewoo Motor filed for bankruptcy in November with an estimated debt of $17 billion. It has since been under court receivership.
