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Monday, 29 April, 2002, 11:01 GMT 12:01 UK
GM-Daewoo deal nears completion
A Daewoo production line at Bupyong, one of two Korean plants not included in the deal
Daewoo's share of the home market has halved in three years
US car giant GM looks set to complete a takeover of its bankrupt Korean rival Daewoo this week after two years of talks.

Daewoo's fate was sealed in August 1999 when the huge conglomerate to which it belonged went under, buried under debts totalling $80bn.

Daewoo Motor's share of that was $17.5bn, and in 2000 it followed its parent into insolvency.

Now, after two years of tortuous negotiation, GM looks set to complete its acquisition of the healthier parts of the business at the bargain price of $2bn.

That includes $400m in investment - another $200m comes from creditors - as well as the assumption of $250m in debt and the rest in equity issued to creditors.

GM's chairman, Jack Smith, will attend a ceremony in Seoul along with Daewoo chairman Lee Jong-dae and Jun Keun-yong, who runs Daewoo's main creditor, the Korean Development Bank (KDB).

Toehold

For GM, the advantages of the deal are obvious, given the dominance over the Korean market of domestic marques.

In 2001, Daewoo sold 170,000 vehicles despite its market share slipping to 10% from 20% before it went bust. GM's total was less than 300.

The imperative to reach a deal on the part of both Daewoo and its creditors meant GM was able to take only the parts of the business it wanted.

As a result, GM is taking only two out of four factories in Korea, along with one in Vietnam, as well as nine sales operations mostly in Western Europe.

Daewoo's plant in Egypt - originally seen as part and parcel of the deal - has since been excluded, along with a dozen factories in Poland, Uzbekistan and elsewhere.

The two plants left behind in Korea are the most actively unionised, and have been centres for workforce opposition to the deal.

They, and the rest of the plants, are likely to be sold off to pay back creditors, or might operate as suppliers for the new operation.

Turnaround

It now remains to be seen whether GM and Daewoo's creditors can turn the company around.

Capacity at the two plants being kept on in Korea amounts to more than 500,000 vehicles a year in a market of about 1.5m cars sold annually.

The two other main domestic carmakers, Hyundai and Kia, have the more lucrative segments of the market sewn up.

"Currently, popular segments are sports utility vehicles, minivans and luxury sedans," ING Barings auto analyst Suh Sung-moon told Reuters.

"Daewoo has no SUV, no luxury sedan and only one minivan."

But few believe it will take long to recover its feet.

See also:

12 Apr 02 | Business
Daewoo dealers 'frozen out of US'
10 Apr 02 | Business
GM-Daewoo deal due 'this month'
03 Apr 02 | Business
Daewoo reduces losses
19 Feb 02 | Business
GM sees Daewoo deal in 60 days
08 Jan 02 | Business
Daewoo cuts jobs to ease merger
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