SEOUL, South Korea – General Motors Corp. (GM) signed a $1.2 billion deal Tuesday to acquire key components of South Korea's Daewoo Motor Co., gaining a long sought-after production foothold in Asia, one of the world's fast-growing markets.
The deal, which followed seven months of tough negotiation, has symbolic significance for the South Korean government, which has vowed to attract foreign investment to restructure the corporate sector following the 1997-98 Asian financial crisis.
The same day, however, the Idaho-based Micron Technology Inc. failed to take over another debt-ridden South Korean company — computer chipmaker Hynix Semiconductor Inc. — when Hynix's board of directors voted down a $3.8 billion takeover proposal. With global chip prices rising, Hynix's board said the company can survive on its own.
The GM-Daewoo deal was signed by GM Chairman John F. Smith, Daewoo President Chairman Lee Jong-dae and Jung Keun-young, head of the state-run Korea Development Bank — Daewoo's main creditor bank.
"This is the market we need to be in," Smith said in a news conference. "This is a great opportunity working with Daewoo and with our research and development, which we can bring here to take advantage of what Daewoo does very well, which is to develop new products in a very fast manner."
About 60 unionized Daewoo car dealers occupied the hotel conference room where the signing was scheduled to take place, forcing executives to hold the event an hour later at the offices of Korea Development Bank. They said a GM takeover will deprive them of jobs.
Daewoo auto workers had held violent protests against a GM takeover, which they feared would lead to mass layoffs. They backed away from their opposition after GM promised to maintain employment at current levels and offered to rehire 300 workers who had been laid off.
Under the deal, GM and its affiliates will invest $400 million to hold a combined 67 percent of a newly established company to which Daewoo would sell three key manufacturing plants — two in South Korea and one in Vietnam — and nine sales subsidiaries in Puerto Rico and European countries, including Austria, France, Germany, Italy, Spain, Switzerland and the Netherlands.
Daewoo's creditor banks will invest $197 million and hold the remaining 33 percent of the new company.
In payment for Daewoo's assets, the new company will issue $1.2 billion worth of long-term redeemable preferred stocks to the creditors, most of them government-controlled. The creditors will also extend $2 billion in long-term loans to the new company, which will assume $573 million of Daewoo's liabilities.
The new company hopes for annual revenues of $5 billion at home and abroad.
Daewoo Motor was declared bankrupt in 2000 with an estimated debt of $17 billion after years of reckless expansion on borrowed money. It has since been under court receivership.
It can produce 2 million vehicles a year at 11 plants at home and abroad.
Earlier Tuesday, Hynix's board of directors nullified a memorandum of understanding signed on April 19 to sell its memory chip operations to U.S. rival Micron. The board's decision was a rebuff to Hynix's creditors, most of them government-controlled, who endorsed the deal a day earlier.
Hynix, the world's third-largest memory chipmaker, has been struggling under debts of more than $6 billion. It began takeover talks with Micron, the world's second largest memory chipmaker, late last year amid falling global chip prices. Talks continued this year as prices rebounded.
Get all the stories you need-to-know from the most powerful name in news delivered first thing every morning to your inbox