DETROIT, April 29 (UPI) -- Auto giant General Motors Corp. is expected to sign an agreement Tuesday to takeover Korean automaker Daewoo Motor Co.
GM Chairman Jack Smith will meet with Daewoo Chairman Lee Jong-dae to ink the final deal, which follows a non-binding agreement signed last September. Also joining the two chairmen will be Jung Keun-young, who heads the Korea Development Bank, Daewoo's chief creditor.
Daewoo Motors filed for bankruptcy in late 2000 following the collapse of parent Daewoo group, which hit the skids during the Asian financial crisis of the late-1990s.
The South Korean automaker has been operating under court receivership since its parent company's bankruptcy.
Auto analysts said the acquisition of Daewoo's production facilities would give GM a key foothold in Asia, while industry experts also expect GM's investment in Daewoo to help reinvigorate the Korean company.
While GM will compete in the Asian market through its production and sale of Daewoo vehicles, the Detroit auto giant has said that it will pull Daewoo vehicles from the U.S. market because of slow sales.
The expected signing of Tuesday's deal comes after difficult labor and financial negotiations. Korean labor unions had staged sometimes-violent protests against the proposed GM takeover of a Daewoo, with the automotive union finally dropping much of its opposition after GM agreed to rehire hundreds of laid-off workers.
Daewoo Motor's main lender, state-run Korea Development Bank, recently accepted GM's demands to reduce the scope of its asset purchase and pay less for Daewoo Motors. The bank backed down from its initial policy of selling all plants and affiliates in a package formula.
Under the final contract, GM will invest $400 million in cash to set up a new auto manufacturing company in July, tentatively named "GM-Daewoo Motor," to take over Daewoo's assets. South Korean creditor banks are to invest $197 million for a 33 percent stake in the joint venture.
The newly formed company will issue creditors $1.2 billion in preferred shares in payment for the assets. In return, creditors agreed to provide $750 million in new loans to the company at an annual interest rate of 6 percent and additional $1.25 billion to be linked to a corporate credit rating of BBB estimated at 11.25 percent.
In addition, creditors promise to assume Daewoo's potential hidden debts. The Seoul government also allowed GM to delay payment of excise taxes for four months to help ease liquidity problems.
GM said it would buy Daewoo's two domestic manufacturing plants in Changwon and Gunsan, and one each in Egypt and Vietnam as well as 22 overseas affiliates.