'GM bids £540m for Daewoo'

Daewoo workers fear the deal will lead to further lay offs

General Motors has offered to pay 1 trillion won ($775.7m, £540m) for South Korea's bankrupt Daewoo Motor, according to the South Korean newspaper Hankook Ilbo.

As part of the deal, GM would take on 2 trillion won of Daewoo's 22.3 trillion won debts, and it would offer shares in the company to creditors in exchange for debt write-offs, according to the newspaper.

Such a deal would not include the takeover of Daewoo's main plant at Pupyong, though it might agree to do so if the purchase price is slashed to compensate the US giant for the extra burden, according to the newspaper.

GM declined to comment on the report and would not divulge how much it has bid for Daewoo, but according to its main creditor, the state-run Korea Development Bank (KDB), a formal bid has been made.

A KBD spokesman said: "GM has submitted a takeover proposal for Daewoo Motor.

"GM is currently explaining [the proposal]."

GM officials, having concluded a six-month study of Daewoo's assets, were expected to start talks with KDB-led creditors on Wednesday.

Formal negotiations

On Tuesday, GM announced it had agreed with KDB to begin formal negotiations to acquire Daewoo.

At stake is an automaker with manufacturing operations in 12 countries but hefty debts that last year gave it a negative value of $10bn.

Last year, GM rival Ford made a nonbinding bid of 7.7 trillion won ($5.97 billion) for Daewoo before abruptly walking out of talks.

Police are seeking Daewoo founder Kim Woo-Choong for accounting fraud

The share price of Korean auto component makers shot up on news of the potential takeover, limiting the fall on the country's stock market, which closed down 0.57% at 628.42 on Wednesday.

But there were also worries over the impact of the eventual terms and conditions of any deal between GM and Daewoo creditors.

The KDB said the take-over talks would take place in a third country.

GM said there was no deadline for finalising a deal on Daewoo.

"The main factor is that it has to be a viable business case," said spokesman Rob Leggat.

Italy's Fiat said it will monitor GM's offer for Daewoo before taking a decision on whether to join its partner in the acquisition.

Failed bid

GM has spent the past few months taking a close look at Daewoo's finances and labour situation.

During the 1997-98 Asian economic crisis, Daewoo collapsed under an estimated debt of $15bn.

In November, it was put under court receivership, a process that froze all of its liabilities.

Violent protests

Daewoo Motor's court-appointed management laid off one-third of the company's 16,000 workers early this year.

Daewoo's labour union, fearing that a GM takeover will bring further mass layoffs, has staged violent protests in recent months.

It is upset about reports that GM is unwilling to use the main Bupyong plant, west of Seoul, which experts say is outdated.

GM has declined comment on whether it will close the plant, which employs about half of Daewoo's 16,000 domestic workers.

Selling Daewoo is seen as a test of the government's will to carry out the corporate reforms needed to attract foreign investments.

Daewoo, South Korea's third largest car manufacturer, can produce two million vehicles at plants at home and abroad.

Despite its heavy debts, the car maker could help foreign investors penetrate South Korea's closed auto market and serve as a stepping stone into China.