GM/Daewoo Resume Negotiations For Takeover Deal

SEOUL- Top-level meetings between General Motors Corp., Daewoo Motor Co. Ltd. and the Korea Development Bank, Daewoo's principal creditor, have resumed.

The move leads industry observers to believe a memorandum of understanding could be achieved by Nov. 30, when a Korean bankruptcy court decides whether to continue protection of the insolvent company or order liquidation of its assets.

Sources tell Ward's Automotive International that GM now is willing to modify its original proposal for acquiring the insolvent automaker.

That proposal was made at cloistered meetings in Hong Kong 11 weeks ago, during the first week of June. They deny recent press reports that a final GM offer of US$782 million has been made, calling them “unfounded” and that (as of press time) nothing significant had transpired. GM spokesman Rob Leggat also discounts the published reports, calling them “highly speculative.”

Insiders say GM’s initial proposal was more of an outline than an offer. It proposed paying Daewoo creditors approximately US$600 million for a limited package of Daewoo's domestic assets. Daewoo sources tell WAI the US$600 million still stands but likely is being negotiated somewhat upward.

Included in the June offer were two automotive plants located in Kunsan and Changwon and the Daewoo Technical Center. Not included were some controversial parts-and-components processing plants and two car assembly plants located in the aged Bupyeong complex. However, GM did propose making an arrangement to buy the output from these plants for an unspecified period of time.

Bupyeong produces engines, transmissions, body moldings and suspension systems. The two car plants produce the midsize Magnus and Leganza models. The proposal also excluded Daewoo Motor Sales Co., the company's car distribution arm. GM proposed instead to supply the existing sales distribution network with cars and parts, without acquiring any of the facilities.

Although details of any pending GM offer are not available, sources say reports that the automaker has requested that the government guarantee up to US$400 million in Daewoo debt make no sense.

Creditor banks already have factored in the impact on Daewoo’s interest bearing debt, sources say. GM has offered to let the banks buy into the new company it would form, but for cash, not a debt-for-equity swap. Meaning the debt stays entirely with bankrupt Daewoo. GM only purchases assets, which transfer to a brand new company that has no liability for Daewoo’s debt.