What a difference a year makes. Last October GM Chief Rick Wagoner still was on the fence over whether to wade into the Daewoo bidding wars yet again. “We have to make a call fairly soon as to whether or not we're seriously going to go at it,” he told WAW at the time.
The ailing Korean automaker, which for 15 years had a 50/50 partnership with GM in Korea, was on the slippery slope of bankruptcy, burdened with $17 billion in debt. GM already had offered a reported $5.6 billion for the automaker and was turned down.Motor Co., selected by creditor banks as Daewoo's white knight after it reportedly offered $6.9 billion, abruptly abandoned its proposed deal in September 2000.
Lacking other suitors, Daewoo again turned to GM, which continued to express interest. The two finally signed a non-binding memorandum of understanding this Sept. 21, under which GM and a certain number of its alliance partners would acquire a large chunk of Daewoo's assets.
Assuming final due diligence passes muster, the plan is to form a new company, which some analysts predict could see annual revenues of about $5 billion, and will enable GM to gain access to the Korean market and a strong portfolio of highly cost-competitive vehicle platforms to support its global strategic initiatives.
The new company will be capitalized through a $400 million cash investment by GM and $197 million in cash from Daewoo creditors, giving the GM alliance 67% majority ownership — although GM itself will hold less than a 50% share, despite being the majority shareholder.
Mr. Wagoner sees no problem in justifying the deal — which includes Daewoo's two most modern car plants, its technical center, plus overseas operations in Vietnam and Egypt — to GM shareholders. “It gives us a huge presence in Korea,” he says. “You've got to be a local player there. The region is going to grow. We have nowhere near the capacity we will need. Korea gives us that, plus a light on product development.”
Daewoo also will help GM in more developed markets, Mr. Wagoner says, while cautioning that his company has yet to scope out exactly where that might be. Nor has a decision been made whether the two will join forces in the U.S., where Daewoo already sells cars. “GM has no statement on this,” he says, assuring that analysis is being done. For now, he says, “We have no specific GM input to Daewoo's strategy of sales outside Korea.”
Nevertheless, he believes the financial aspects of the pending deal are good, given Daewoo's current state of affairs. “We hope that banks take part,” he says. “It's a fair deal. If the (new) company works out, that will be good for us.”