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Seoul's Selection of Ford to Seek Daewoo Is Major Turning Point

Autos: It signals the country is ready to open its car market. Deal would give Ford a big global lift.


TOKYO — The South Korean government's surprise decision to grant Ford Motor Co. exclusive negotiating rights for the insolvent but highly prized Daewoo Motors is the strongest signal to date that the country is weaning itself from a long history of economic nationalism.

Assuming it is consummated--the creditor's committee hopes to make a final decision by September--the deal is also a milestone for Ford, enhancing its standing in Asia and significantly narrowing the worldwide gap between it and No. 1 auto producer General Motors Corp.

According to South Korea's Financial Supervisory Commission, Ford bid $6.93 billion for Daewoo, apparently leaving big money on the table. The Associated Press said the bidding group DaimlerChrysler-Hyundai offered about $6 billion, while GM-Fiat offered between $4 billion and $5 billion.

"It's now Ford's [deal] to lose," said J.J. Lee, Seoul-based chief strategist with HSBC Securities. "And with this move, the government has sent a very strong sign that they don't mind foreign participation."

It would be the largest and most visible foreign takeover ever in South Korea's politically sensitive manufacturing sector, eventually providing a big boost for competition and reform.

Seoul's Thursday decision deals an early blow to GM. The No. 1 auto producer worked hard to secure the winning bid, had a 50-50 joint venture with Daewoo Motors in the 1970s and was seen as the strongest contender.

Daewoo sold 1.12 million cars last year. A takeover would give Ford control of companies worldwide that are projected to make 8.41 million vehicles this year, just behind GM's 8.5 million, according to one analysis. But when the auto makers' other alliances are taken into account--GM, for example, holds a non-controlling 20% stake in Fiat--the gap is much wider: 12.7 million vehicles for GM and partners versus 9.7 million for Ford, its current partners and Daewoo.

With Daewoo, Ford would control about a quarter of South Korea's auto market, where vehicle demand is expected to rise by 56% to 1.99 million cars by 2005, outpacing growth in Europe and North America, Standard & Poors-DRI said. It would also give Ford about 15% of the market in central Europe, where Daewoo made several acquisitions in the 1990s.

The decision to grant exclusive negotiating rights to just one company was a surprise. In the past, the government has generally preferred to select at least two bidders when available to increase its negotiating leverage.

That said, the bids were nonbinding, and there is still considerable room for downward revisions or even an unraveling. Seoul has in other cases reopened negotiations when it felt the price offered was too low. Daewoo Motors is saddled with more than $16 billion in debt held by creditor banks closely linked to the government.

Analysts said despite various other factors cited by creditors in their decision to name Ford, including its plans to keep existing workers and support the South Korean auto parts industry, most bidding groups offered roughly the same nonmonetary terms. Ultimately, the deciding factor for government officials and politicians was Dearborn, Mich.-based Ford's higher offering price, they said.

Seoul has come under strong criticism from voters for unloading national assets to foreigners at fire-sale prices.

The decision against native son Hyundai, meanwhile, reflects antitrust concerns that South Korea's dominant auto maker would then have close to 100% of the domestic market, analysts said. Hyundai Motor on Monday agreed to sell a 10% stake to DaimlerChrysler for $428.9 million.

The Daewoo creditor committee has generally tried to sell off pieces of the failed conglomerate at about 35 cents on the dollar. Ford's current offer is closer to 42 cents, however, leading some to suggest that Ford's strategy was to come in with a high initial price and then later try to whittle it down. If so, this could open the door for GM or even DaimlerChrysler to slip back in.

Daewoo Motors has been actively courted despite its enormous debt load and sagging market share, in part because it offers foreigners a relatively inexpensive way to gain traction in the all-but-closed closed South Korean market, to acquire key Daewoo factory capacity in Poland and other Eastern European markets, and to gain small-car manufacturing capability.

Analysts said DaimlerChrysler never seemed particularly keen to acquire Daewoo. The real elbowing has been between Ford and GM.

Christopher Richter, auto analyst with HSBC Securities Japan, said Ford was hungrier because it is in the weakest position in Asia. "Getting this was more critical for Ford than GM," he said.

GM has ties with Isuzu, Suzuki and Subaru. Toyota Motor is dominant throughout much of the region on its own, while DaimlerChrysler has a stake in Mitsubishi. Ford is left with Mazda, among the weakest of the Japanese players, Richter added.

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