The number of bidders for Daewoo Motor officially shrank from five to three in the run-up to yesterday's deadline for offers to be submitted. DaimlerChrysler and Hyundai Motors on the one hand and General Motors and Fiat on the other have agreed to make joint bids against each other and Ford for debt-laden Daewoo Motor. The DaimlerChrysler and Hyundai Motors tie-up was well-leaked, and the General Motors and Fiat alliance had been widely expected.
The Korean government and Daewoo Motor's creditors should not be too concerned by the narrowing of the field û for many this has always been a two-horse race between General Motors and Ford. Fiat is 20%-owned by General Motors after a share swap earlier this year, and will be taking less than 20% of Daewoo Motor if its bid with General Motors is successful.
DaimlerChrysler, which at end-March had short-term liquidity of E8 billion ($7.49 billion), has already been on a buying spree in Asia this year. It first agreed to acquire 34% of Mitsubishi Motors for $2 billion and, as was announced this morning, is spending W480 billion ($428 million) on a 10% stake in new partner Hyundai Motors (which is also 2%-owned by Mitsubishi); it has an option to acquire an additional 5% after three years. As part of the latter deal, which includes submitting a joint bid for Daewoo Motor, DaimlerChrysler and Hyundai Motors are also forming a 50/50 joint venture to make commercial vehicles and, together with Mitsubishi, will develop and produce a range of small cars.
The upshot is that DaimlerChrysler already has sizeable exposure to the Asian auto market and Hyundai Motors now has one of the world's major manufacturers behind it to help it hang on to its 75% market share in Korea and grow sales overseas. "I don't really see a desperate need for DaimlerChrysler and Hyundai Motors to get Daewoo Motor," says Mark Barclay, analyst at Samsung Securities.
The Korean government, for its part, has to balance competition fears, the interests of foreign investors and nationalist sentiment. The country's Fair Trade Commission has in the past made it clear that Daewoo Motor should not be sold to any entity in which Hyundai Motors has a say. That's because such a move would give Hyundai Motor 97% of the country's auto market.
Foreign bidders, meanwhile, will be hoping there are no nasty surprises still lurking in Daewoo Motor. HSBC last year had to walk away from its attempted acquisition of Seoul Bank and, after more than a year of talks, Renault earlier this year uncovered $262 million of hidden debts shortly before agreeing to buy Samsung Motors.
The nationalists will likely have to be happy that the Korean government and Korean banks will own a significant slice of Daewoo Motor as part of any deal agreed. "The government and the creditor banks will likely take a stake via a debt-for-equity swap and the rest will just be written off," says Barclay. Those opposed to a foreign sale may also be kept happy if the government names the DaimlerChrysler and Hyundai Motors consortium, one of the two preferred bidders, when it makes public its decision on Friday, he adds.
Daewoo Motor at end-June last year had debts of around W18 trillion and creditor banks are thought to be looking for a winning bid of over W7 trillion.