General Motors Corporation, Daewoo Motor Company, and the Korea Development Bank acting on behalf of the Daewoo Motor Creditors Committee, today finally signed final definitive agreements to establish a new car company.
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The signing ceremony took place at the bank’s headquarters in Seoul after protestors chanting slogans burst into the original venue at the Hilton hotel and riot police were called out.
GM, along with selected “business partners”, and the creditors will be the stockholders in the new company.
The deal does, however, exclude the Daewoo Motor Sales operations in the USA and UK and the Egyptian assembly plant, as widely predicted.
GM is also buying only two South Korean plants and a third plant will supply cars and components under contract for six years, with GM retaining the option to acquire the facility later.
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By GlobalDataIn a statement, GM said that the new company would have annual revenues of about $US5 billion and would own and operate selected domestic and foreign assets of Daewoo Motor Company.
The transaction is expected to close within two to three months, pending court and government approvals, and Daewoo meanwhile will continue to manage and operate its businesses.
“GM’s investment in this new company allows us to participate in the important South Korean market, and share in the benefits associated with its outstanding product development and manufacturing capabilities,” said GM chairman John (Jack) Smith.
“This enterprise will produce a new generation of cost competitive vehicles that can be marketed around the world.”
GM will invest $251 million in a 42.1 percent stake in the new company which has yet to be named.
Daewoo creditors will hold a 33 percent stake and some of GM’s business partners will share the remaining 24.9 percent equity interest.
The basic framework for the definitive agreements include the following:
– The new company will be capitalised through cash contributions of $400 million from GM and its participating business partners, and $197 million from Daewoo creditors for ownership stakes of 67 percent and 33 percent respectively.
– In return for the creditors contributing selected Daewoo automotive assets, the new company will issue to the creditors a long-term redeemable preferred equity with a face value of $1.2 billion and an average annual coupon rate of 3.5 percent.
– The assets to be contributed to the new company include a total of nine overseas subsidiaries and three manufacturing plants.
– The sales subsidiaries include those in Austria, the Benelux countries, France, Germany, Italy, Puerto Rico, Spain, Switzerland, plus Daewoo’s European parts operations in the Netherlands.
– The manufacturing plants are located in Changwon and Kunsan, South Korea, and the automobile operations in Hanoi, Vietnam.
– The manufacturing facility in Bupyong, South Korea, will remain open and continue to supply the new company with vehicles, engines, transmissions and components for at least six years. The agreements give the new company an option to acquire this plant any time within the next six years.
Speculation that GM would dump the Daewoo nameplate appear unfounded.
The new company will continue to use the Daewoo brand in Korea, in countries where overseas subsidiaries are acquired such as those in Western Europe, and in certain countries where independent distributors exist.
However, exports to new markets, such as Mexico, will use established GM or GM-affiliated brands.
“Final branding and distribution plans are still under development and will be announced after the transaction close,” GM’s statement said.
The new company will also assume $573 million of primarily operating liabilities and acquire inventories associated with the acquired assets with a value of U.S. $385 million.
Long-term committed working capital facilities of $2 billion will be provided to the new company by the South Korean creditors.
Provisions will be made to ensure that Daewoo’s existing customer warranty obligations are satisfied following completion of the transaction.
Several overseas manufacturing facilities not being acquired by the new company will continue to be supplied parts, components and technical assistance from the new company for an unspecified period.
The new company will acquire many of the existing sales subsidiaries in Western Europe.
However, in the United Kingdom, the existing sales subsidiary will not be acquired and a new sales operation set up.
The distribution arrangement in other European markets, which has been handled by independent importers, will be reviewed and the new company plans to establish a European operations centre to direct and coordinate its business in Europe.
Nick Reilly, most recently held the vice president of sales, marketing and aftersales for GM Europe and chairman and managing director of Vauxhall, will serve as president and chief executive officer of the new company.
An interim transition team consisting of Daewoo, GM and GM partner management personnel will be appointed to ensure a successful startup after the deal closes.
Employment levels in Korea are expected to remain at current levels.
Other facilities, subsidiaries, ventures, debts and liabilities not included as part of the definitive agreements will remain the responsibility of the existing Daewoo Motor Company.
GM, Daewoo Motor Company and the Daewoo Motor Creditors Committee began formal negotiations in May 2001 following more than six months of evaluation and business plan development.
The three sides signed a non-binding memorandum of understanding in September outlining the framework for the negotiation of a definitive agreement.
