Memo of Understanding Signed
General Motors Corp
21 September 2001
Contacts: (Singapore)
Rob Leggat
65-9-757-5096
(New York)
Toni Simonetti
212-418-6380
GM, Daewoo Motor Company and Creditors Reach Preliminary Agreement
Sign MOU to Form New Company
SEOUL - General Motors Corporation, Daewoo Motor Company, and the Korea
Development Bank, acting on behalf of the Daewoo Motor Creditors Committee
(creditors), today 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. This transaction will result in the establishment of a
well-capitalized company with strong financial flexibility. Both partners are
committed to ensuring that this company is transformed into a viable and
competitive automotive enterprise. This transaction allows the creditors to
participate in the success of the company while also enabling GM to achieve its
strategic objectives of gaining access to the Korean market and a strong
portfolio of highly cost competitive vehicle platforms, in support of global
strategic initiatives.
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.
In addition, a General Motors transition team is on the ground in Korea and will
immediately begin to work with current Daewoo management on the development of
an orderly transition plan to continue to stabilize the company, ensure its
long-term financial viability, honor commitments to existing customers, ensure
the continued supply of vehicles, parts and servicing, strengthen the Daewoo
brand name and enhance Daewoo Motor's global reputation for offering customers
superior value.
The basic framework for this agreement includes the following:
- The new company will be capitalized through cash contributions of $400
million from GM and its alliance partners and $197 million from the creditors
for ownership stakes equaling 67 percent and 33 percent respectively.
- General Motors Corporation, which will be the largest shareholder by a
significant amount, will own less than 50 percent 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 percent.
- The new company 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.
- The new company will assume certain normal operating liabilities (severance,
warranty, and supplier obligations) capped at $510 million. In addition, the new
company 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 Company 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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