GM Closes In On Daewoo Deal

SEOUL -- General Motors Corp. is offering slightly more than $1 billion to buy specified assets of bankrupt Daewoo Motor Co. Ltd., informed sources tell Ward's Automotive International. The money is to come from a new company GM will create to take over ownership of the Daewoo assets it has selected.

Sources say the offer is highly conditioned on productivity and profitability and fluctuates under varying circumstances. If certain conditions are not met, the actual amount paid from the new company's operating profits might be substantially less than the stipulated $1 billion.

Both automakers agree the immediate signing of a memorandum of understanding that is practical and workable will do much to stabilize Daewoo's plunging sales in Europe and North America. This is essential because it will take at least four to six months after the MOU is signed before the deal can be wrapped up. During that time, Daewoo will have to stand on its own feet. It can't do that if overseas sales keep plunging, analysts on both sides agree.

One reason it will take time to reach a final agreement is that, despite negotiations between the two parties having dragged on for 10 months, sources say GM has yet to perform a good accounting due diligence. That is likely to take several months.

That said, the MOU is very close to the point where the language can be written out for signature, with the antiquated Bupyeong complex as the remaining stumbling block. GM is guaranteeing to purchase the output of the plants for a certain number of years. Parts and components include engines, transmissions and chassis systems. Vehicle output at the two assembly plants includes the Magnus full-size, Leganza midsize and Lanos compact cars.

But while Daewoo and the government have accepted GM's overall proposal in practical terms, they want GM to appear to buy the Bupyeong plants. That would make the deal seem more palatable to Daewoo's labor unions and the Korean people. It also would make it more acceptable to security analysts, if they were reasonably assured that labor would not fight the deal.

Sources say the Daewoo side wants GM to actually take over ownership of the plants at no cost, with a "conditional" written contract. The contract would stipulate that GM could relinquish ownership at some future date without incurring labor repercussions or other penalties. In other words, GM would be a temporary deed holder.

GM says it only will sign an MOU that makes it clear it is not the owner of the plants but has been granted an option to acquire them at its discretion within a certain time frame.

With the financial portions of the proposed MOU now apparently acceptable to both sides, sources say the Bupyeong situation could be resolved and the MOU language worked out sometime by end of the month.