Daewoo

SEOUL (Reuters) - Capping over a year of intense talks, General Motors said it is forming a joint company with South Korea's bankrupt Daewoo Motor in which the U.S. automaker will hold a majority stake with partners.
GM's memorandum of agreement Friday confirmed it would take over four of Daewoo Motor's plants, including two of its major plants in South Korea, and may include the contentious ageing Pupyong plant in its fold "should it be appropriate".

The move provides the world's biggest automaker with a foothold in one of Asia's biggest car markets and forms a company with $5 billion in annual revenues.

"We have focused on this for some time because we always believed that there was a valuable market strategy," Alan Perriton, GM's executive in charge of alliances, said in a telephone interview with Reuters.

"We hope we could reach a definitive agreement by year-end," he added.

GM would pay $400 million in cash to form a 67:33 joint venture with Daewoo's main creditor, state-run Korea Development Bank (KDB), with the U.S. auto giant taking the larger share, he said. The Korean side would foot $197 million. GM's takeover of South Korea's third largest automaker includes participation by Italy's Fiat and other partners, Perriton said.

For the Korean government, GM's acquisition of Daewoo Motor would be a major milestone not only in its two-year hunt for a suitor for the third-ranked automaker, but also in demonstrating Seoul's willingness to restructure debt-laden companies.

SPRINGBOARD

Perriton said the Daewoo deal would give GM immediate access into the Asia Pacific market, additional technological development capabilities as well as sales and distribution networks in countries that GM has not been focused on.

GM, its alliance partners and the present Daewoo Motor management team will run the joint venture company.

Perriton said that GM would export part of Daewoo Motor's output to Europe and North America.

"A significant portion of the exports will go to Europe and we plan to strengthen Daewoo Motor America's operations," he said.

GM plans to acquire only four of Daewoo's 16 production production units, both overseas and in Korea, while buying all of the Korean automaker's 22 overseas sales subsidiaries.

"Included in the transaction will be Kunsan and Changwon. Vietnam and Egypt will be included," Perriton said.

"We will continue to look at what is the best course of action," for the other plants, he said.

PUPYONG POLITICALLY SENSITIVE

Daewoo operates four production plants in Korea. The main Pupyong plant west of Seoul is not only its oldest, but is also politically sensitive.

"Pupyong as an overall assembly operation will not be included as part of the acquisition transaction," Perriton said.

He added that the main Pupyong plant would contine to supply parts for the time being.

The Pupyong plant was the scene of fiery protests in February of this year when Daewoo Motor laid off 1,750 workers.

Perriton said GM would take on only select parts of the Pupyong plant, including its research and development and tool and die operations.

He added that GM would assume only Daewoo's $320 million in overseas debt and none of the ailing carmaker's domestic liabilities.

Daewoo was saddled with 22 trillion won ($17.08 billion) in liabilities as of the end of last year, compared to 9.1 trillion won ($7 billion) in assets.