Renault buys Samsung Motors in low-risk deal

Samsung Motors'' creditors at last bite the bullet and sell the company at a knock-down price to Renault of France - the only potential bidder

After a year of negotiations, France's Renault has succeeded in acquiring debt-ridden Samsung Motors for a song - not too surprising given that the Korean automaker failed to attract any other bidders. Renault's bid valuesáSamsung Motors atáW620 billion ($565 million), well short of the W1.1 trillion Samsung Motors' creditors had been hoping for.

"It is a very good deal for Renault, but not a very good deal for the creditors," says Kum Hee Han, analyst at Merrill Lynch.

Mind you, beggars can't be choosers. Theádeal took a year to clear, andá$262 million of hidden debts owed to Samsung Motors' parent came to light less than a month ago. Prolonged negotiations and nasty surprises, coupled with the fact Samsung Motors at best had a mere 3% of the Korean auto market, weren't the greatest lures for potential buyers.

"The creditors realised if they lost Renault, they would have no one else to buy Samsung Motors," says Han.

Joint venture acquisition

Samsung Motors will be acquired by aájoint venture owned byáRenault and Samsung Group. The new company will pay W110 billion cash up front to creditors, and W233 billion in instalments from Samsung Motors' operating profit over the next 10 years. The joint venture will also take on W233 billion of Samsung Motors' debts and this is earmarked for repayment in the 10 years starting 2004. The remaining W44 billion will be paid in shares, giving creditors a 10% stake in the company. Renault will then own 70% and Samsung Group the remaining 20%.

For Renault, the gamble is a good one; the French company only has to put up 78% of the cash portion initially.

"If Samsung Motors doesn't make money, Renault has only W85 billion to lose, but the upside is huge," says Han.

Renaultáhas said it hopes to capture at least a 10% share of the Korean auto market via the purchase ofáSamsung Motors.