SEOUL--General Motors Corp. executives Alan Perriton and Rudolph A. Schlais Jr. slipped into Korea last weekend seemingly as apparitions.

They met secretly with senior government and Korea Development Bank officials on May 28, then rounded up the entire Daewoo Motor Co. Ltd. negotiating team and whisked them away to a secret location outside of Korea for extensive acquisition negotiations.

With superb elusiveness, the high-visibility GM officials managed to do all this, plus make an announcement to the news media regarding the formal negotiations, without being seen by a single reporter.

The reason for the clandestine approach is twofold -- to evade radical union groups that oppose GM’s purchase of Daewoo and to sidestep a "tediously excessive" news media. An anxious Korean press, GM insiders complain, has been publishing inaccurate stories about the impending negotiations that have been muddying the waters for Wall Street security analysts and giving GM investor relations officials in New York and Detroit considerable anguish.

Both union protestors and erroneous news stories have impacted analysts representing major GM share blocs on Wall Street, giving them the jitters, GM insiders claim. The cautious attitude of The Street is not lost on GM's directors, who also carefully watch the maneuvers of Mr. Schlais, president of GM Asia/Pacific, and Mr. Perriton, who is responsible for all GM acquisitions and mergers in the region.

"What Rudy and Alan require is two-front vigilance," a GM insider tells Ward’s Automotive International. "They not only have to convince Daewoo, the Korea Development Bank and the Korean government that their proposal is a good one, but they need to keep reassuring their own directors that it's the right thing to do, as well."

The deal is not without difficulty and the legal entanglement is fairly complex. KDB, a government institution, for example, is the principal creditor of bankrupt Daewoo. Theoretically, it is the body that has the legal right to dispose of the insolvent automaker’s assets in order to settle its staggering defaulted debt.

At the same time, Daewoo is temporarily under court protection from all creditors, including KDB, giving it full negotiating rights with GM, even though KDB sits in on the action.

This is how the secret negotiation scenario finally is unfolding seven months after GM, with alliance partner Fiat SpA, signed a letter of understanding with Daewoo in October 2000:

At their initial meeting in Korea, GM says it’s not yet ready to submit a Memorandum of Understanding (MOU) to the KDB or Daewoo. Soon after, GM and the Daewoo negotiating team leave Korea to a secret offshore location, where they will hammer out a "very detailed" MOU that will differ from the usual form. The MOU, although legally non-binding, eventually will include extensive terms and conditions for making the Daewoo acquisition – addressing every key aspect of the transaction.

The agreement will cover a number of highly controversial matters, foremost of which are the offering price, which Daewoo assets will be acquired, and GM's responsibilities toward existing Daewoo employees. Analysts agree that each subject is highly complex and agreement on all three of them will tax the negotiating skills of both sides.

On its side, GM stresses that any offers put on the table during the negotiations are "starting points," and that the company remains flexible in its offer and attitude. This flexibility includes GM's position on whether or not to acquire the aging Pupyong production facilities and the price the automaker is willing to pay to complete the deal.

Korean security analysts believe GM must offer $2 billion to $3 billion in order for the creditor banks and politicians to save face. North American analysts say that is wishful thinking. Such a bid is unrealistically high, they say. GM's major shareholders surely would protest strongly, they suggest.

"Although we can't comment specifically on price during negotiations, we can say, however, that our offer will be fair”, Mr. Perriton tells Ward’s. "It’s important to realize that our stockholders and the international business community are closely monitoring Daewoo's situation. The price will be fair, but it's important to keep our shareholders in mind. A major concern is the amount of effort and resources that will be required to get Daewoo back on its feet. From our perspective, this has to be included as part of the price."

The outdated Pupyong plant stirs another controversy. This is a facility GM really does not need, at least for the long term. The two assembly lines at Pupyong produce Daewoo’s mid-size and full-size cars. Capacity is 500,000 units annually, but the 4,470 workers are producing well under half that amount. By contrast, the modern Kunsan plant has capacity for 300,000 compact cars. It is close to full capacity and is manned by just 1,308 workers.

In addition to the plants, supporting press, welding and paint shops, the Pupyong complex also contains Daewoo’s headquarters, which employs most of Pupyong's 2,850 white collar workers. The complex is home to a large technical center, as well, which insiders say GM does not need.

This is a super-sensitive situation. If GM excludes these Pupyong assets, as operational prudence dictates, it will create a firestorm of worker protest. However, if GM agrees in some way to continue utilizing the facilities – even with smaller staffs – it’s possible to exclude the assets from the acquisition.

Daewoo is highly amenable to negotiating a long-term, no-cost lease for the Pupyong plants, subject to GM replacing the aging facilities when business and market conditions merit it, Daewoo sources tell Ward’s.

With respect to the Pupyong production facilities, GM tells Ward’s: "We cannot comment on which assets will be included in the final deal, if we are able to conclude one. However, everything is negotiable, and everything we propose is a starting point. There is no finality to our position."

GM does not have to seek approval from its board of directors for the Memorandum Of Understanding, although it will advise the directors in detail. The board is required to give its approval only after a definitive agreement is reached, which marks the end of the road for the negotiating process.

Everyone involved is aware that the timeline target for completing the detailed MOU is June 15, at which time court protection runs out for Daewoo and the presiding judge can order liquidation of its assets at public auction.

However, even if the timeline is not met, as long as substantial progress is being made, the court-appointed receiver can obtain creditor approval and request an extension of time by the presiding bankruptcy court judge. Under Korean bankruptcy law, the judge can extend court protection of Daewoo for an additional 90 days – until Sep. 15.

The detailed MOU eventually becomes the basis of continuing technical negotiations between GM and Daewoo. The technical phase translates all of the facets in the MOU into legally binding language.

At the completion of the post-MOU technical phase, all details become legally binding and incorporated into a final definitive agreement, which then must be approved by the GM board of directors, by the Daewoo receiver, the KDB (acting on behalf of all creditors) and, finally, by the bankruptcy judge.

After the definitive agreement is approved, its enactment details take place and the specified assets of Daewoo Motor transfer to a new legal entity owned by the GM/Fiat alliance. o