GM and Daewoo make a deal

GM, Daewoo Motor, and the Korea Development Bank have signed an MOU outlining the formation of a new company to be owned jointly by GM and its partners.

General Motors, Daewoo Motor, and the Korea Development Bank, acting on behalf of the Daewoo Motor Creditors Committee have signed a non-binding memorandum of understanding outlining the terms and conditions, timetable and steps required for the formation of a new company to be owned jointly by GM and certain of its alliance partners.

The new company would have annual revenues of about $5 billion and own and operate selected domestic and foreign assets and businesses of the Daewoo Automotive business.

With the signing of the MOU, General Motors will immediately begin final due diligence. Both sides anticipate that a binding set of agreements will be signed before year-end.

The new company will be capitalised through cash contributions of $400 million from GM and its alliance partners and $197 million from the creditors for ownership stakes equaling 67% and 33% respectively.

General Motors, which will be the largest shareholder by a significant amount, will own less than 50% of the new company. One or more of GM’s alliance partners will participate in this investment, bringing the GM/alliance partner position to 67%. It will be managed by GM and its alliance partners working with the existing DWMC management team.

In return for the creditors contributing selected Daewoo automotive businesses and assets to the new company, 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 new company will also assume approximately $320 million of debt comprising existing borrowings at the overseas subsidiaries. It will assume certain normal operating liabilities (severance, warranty, and supplier obligations) capped at $510 million. In addition, it will also assume inventories guaranteed to have a value of $980 million.

Long-term committed working capital facilities of $2.0 billion will be provided to the new company by the Korean creditors.

At the outset, the new company would include the Changwon and Kunsan domestic manufacturing plants. The Bupyong facility would remain open and continue to supply the new company with vehicles, engines, transmissions and components.

The agreement includes a provision that allows for the potential future acquisition and integration of the Bupyong plant into the new company should it be appropriate.

The new company would also include 22 current overseas sales subsidiaries of Daewoo Motor along with manufacturing facilities in Egypt and Vietnam.

For those overseas manufacturing facilities of Daewoo Motor that are not being acquired by the new company, several will continue to be supplied parts, components and technical assistance from the new company for a period of time.

General Motors, Daewoo Motor and the Daewoo Motor Corporation Creditors Council began formal negotiations in May following more than six months of evaluation and business plan development.

Both sides have agreed to keep the content of their discussions confidential during this final negotiation process.

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