NEW YORK (CNNfn) - Ford Motor Co. took the lead Thursday in efforts to buy South Korea's troubled Daewoo Motor as its bid of 7.7 trillion Korean won, or $6.9 billion, for that country's second-largest automaker made it the preferred bidder in the global auction.|
Ford edged out a joint bid from General Motors Corp. and Italy's Fiat that many had seen as the front-runner, as well as a combined effort from German-American automaker DaimlerChrysler and Hyundai Motors, which is Korea's largest automaker.
Ford's designation as the lead bidder by a creditor committee of Daewoo's parent corporation simply gives Ford exclusive rights in a second round of negotiations set for the next six weeks. Many analysts expect the price to drop during this next round.
Daewoo is an attractive property despite being unprofitable and burdened with debt. It is regarded as a key entry to the relatively closed Korean auto market, the sixth-largest in the world, as well as a platform for sales of small cars in Asia, which is expected to be the fastest growing marketplace for vehicles in the coming decades.
"Since it's practically impossible to export to Korea, Daewoo's 24 percent marketshare makes it extremely attractive," said John Casesa, auto analyst with Merrill Lynch.
Daewoo also has a strong presence in Eastern Europe, another market with more growth potential than saturated markets in Western Europe and North America.
But Ford's price was higher than some expected. Casesa expected the bid to be $5 billion, near what he believes GM bid. A statement from GM (GM: Research, Estimates) suggested officials at that company believe Ford (F: Research, Estimates) bid too high.
"We had a chance to study the company in detail over a long period of time," GM spokesman John Mueller said.
He acknowledged the world's largest automaker was disappointed with the decision. "We think we understand the value of (Daewoo) better than anyone," Mueller said. "As a result, we submitted what we thought was a fair price and a comprehensive proposal." He would not give details of the bid.
Mueller said one of GM's main concerns going forward is gaining better access to the Korean market despite the lack of a partner there.
"We would hope the Korean market would be open so we can pursue our business in some meaningful way there," he said.
Ford said it is pleased to be the winning bidder, but would not comment on the price offered or any other details, citing a confidentiality agreement.
"We made what we believe is a good bid," said Paul Wood, a Ford spokesman. "We're pleased that the committee selected our bid. We'll now move forward into the next round, where we'll find out a lot more information about the company."
Officials of DaimlerChrysler (DCX: Research, Estimates) could not be reached for immediate comment, although Reuters reported that a company official said it was not disappointed by the decision.
Besides the money, Ford made a promise to not reduce head count at troubled Daewoo, according to Merrill Lynch analysts, which will make a turnaround there difficult but was important to winning the bid.
Ford offered better capability "to improve the corporate value of Daewoo Motor, willingness to transfer technology, provide job security and contribute to the growth and development of the components industry," Oh Hogen, chairman of Daewoo's creditor's committee, told a news conference.
Oh added that the committee would ask the other candidates for fresh proposals if negotiations with Ford fail. Merrill Lynch analyst Kumhee Han said the committee would turn first to DaimlerChrysler, then to GM if a deal can't be closed with Ford.
Mueller said GM will stay close to the situation in case negotiations between Ford and Daewoo don't produce a final deal, but that in the meantime it will move in other directions to address objectives in Asia.
Final sale price 'to be trimmed'
Han said that Daewoo's overseas liabilities are a major obstacle to the deal that could lead Ford to lower its bid, along with demands from Daewoo unions and creditors to retain a stake in the company after the sale.
She said turning Daewoo around will be very difficult, especially if Ford is not able to reduce head count as part of the process. Casesa said that even if it was profitable, it could take eight years at the current bid price to see a return on the investment for Ford.
"The deal is strategically interesting, financially very difficult," he said. "The nature of the auto industry absolutely requires any of these bidders to look very far ahead. But investors in cyclical businesses won't do that. Ultimately, the purchaser's stock price will be punished whether it's a good deal or not."
Daewoo Group is selling assets to trim its heavy debt burden, which brought it close to bankruptcy last July. Daewoo Motor is one of the more attractive assets its parent company is unloading, analysts have suggested. It produced 945,000 vehicles last year, selling a third of them in its domestic market, and has the capacity to build 2 million vehicles a year.
The global auto industry has seen rapid consolidation and cross-border alliances and investments in recent years, as the carmakers look to spread out development costs over a broader base.
Ford's existing presence in Asia is through its controlling stake in Japan's Mazda Motor Co. The U.S. firm made an unsuccessful bid for Hyundai's sister company, Kia Motor, in 1998.
If Ford goes ahead with its bid, it will complete a round of links between overseas automakers and Korea's three dominant companies. In April, France's Renault paid $560 million for a 70 percent stake in third-ranked Samsung Motors, while DaimlerChrysler Monday bought a 10 percent stake in Hyundai Motors for $468 million.
Shares of Ford gained 27/32 to 43-1/8 in midday trading Thursday, while GM shares lost 21/32 to 59-9/16. DaimlerChrysler's American depositary receipts lost 5/16 to 52-5/8 in New York trading, while its shares closed off 0.9 euro at 55.50 euros in Frankfurt.
-- from staff and wire reports