There are strong rumours doing the rounds in Seoul that DaimlerChrysler (DC) has teamed up with Hyundai Motor (HM) and the two will make a joint bid for Daewoo Motor (DM). If, as seems likely, this is the case, the joint venture would be a strong contender to win control of thedefunct automotive company. The other hot favourites, General Motors (GM) and Ford, can boast financial muscle but neither has Korean credentials.
The fact that having a Korean party on board - especially HM, which already has a 75% share of the country's auto market - is seen as a positive factor reflects the considerable shift in the Korean government's stance in recent weeks. Two to three months ago, government rhetoric was very much against allowing HM in for fear of reinforcing the latter's monopoly position in the country's auto market. In addition, there were concerns that a HM victory would exacerbate criticism that foreign companies were not being allowed to compete on equal terms; something which may have dissuaded overseas participation in future asset sales.
What has caused the subsequent change of heart is hard to discern, though recent industrial action by auto workers certainly played a part. Competition fears have taken a backseat and recent comments by the Korean government have very much focused on the fact that the top dollar will win. This has moved HM from pariah to belle of the ball. Partnering HM in a bid for DM is the only way foreign parties can address nationalist concerns. "By joining hands with HM, a power play in Korea, DaimlerChrysler might better its chances . . . There is a sentiment against a foreign company taking over Daewoo Motors," says Richard Pyo, analyst at Credit Suisse First Boston in Seoul. "There is a high possibility of these two companies joining and if they do they have got a good chance of winning."
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If a DC-HM alliance does win the bidding for Daewoo, expectations are that HM would get 20% of DM, DC 40% and DM's creditors the remaining 40%. Although people are talking up a DC-HM bid, GM and Ford, which has also held talks with HM about the posiblility of a joint bid, are also very real possibilities to take control of DM, especially if one takes into account external factors. "Korea has to show the World Trade Organization at least it is opening up its domestic market . . . I think the government has to view a foreign buyer as the most attractive option," says Richard Biggs, analyst at ABN Amro.
HM has confirmed it is in talks with DC regarding a tie-up of some sort, but says no deal has yet been agreed. True to form, DaimlerChrysler is keeping quiet. That might suggest a joint bid is on the cards. HM lost face early in May when DaimlerChrysler denied a Hyundai statement that the two had agreed to team up with Mitsubishi Motors Corporation of Japan to jointly develop a new small car. DaimlerChryler is buying 34% of Mitsubishi Motor, which in turn owns almost 2% of Hyundai Motor. Daimler Chrysler and Mitsubishi are developing a subcompact car together and the two have considered bringing Hyundai Motor into the project.
There are also reports that DC will buy 10% of HM for $200 million. These are being treated with a degree of scepticism, given that DC doesn't normally invest without assuming management control - something HM will not give up."HM is highly likely to set up a bidding consortium with DC. However, I don't think DC is prepared to pay lots of money for HM equity," says DS Lim, analyst at Nomura in Seoul.
