INDIA BUSINESS WORLD - OCTOBER 2006
THE MONTH THAT WAS...

VIDEOCON CLINCHES DAEWOO ELEC DEAL

 THE consortium led by Videocon Industries has signed a preliminary agreement to acquire South Korea's beleaguered Daewoo Electronics for 700 billion won or about $729 million.

   The deal would mark the secondlargest acquisition by an Indian company after Tata Steel's recent $8-billion takeover bid for Corus group, though in a consortium. The consortium — 50.1% owned by Videocon and the balance by US PE fund Ripplewood Holdings — signed an initial deal with the creditors of Korea's third-largest electronics maker for the acquisition on October 20.

   Daewoo's creditors, including Korea Asset Management Corporation and Woori Bank, were quoted as saying that the acquisition price is subject to change after a month-long review.

   The deal will mark Videocon's third purchase in the last one year after Thompson's global picture tube business for around Rs 1,260 crore and the lossmaking Indian subsidiary of AB Electrolux, Sweden. Videocon had taken over Electrolux Kelvinator India in a cashless transaction, wherein AB Electrolux agreed to subscribe to Videocon's GDR worth about Rs 406 crore.

   The Daewoo transaction, which has been in the works since September when the Videocon-Ripplewood consortium was shortlisted as the preferred bidder, ran into rough weather with the Korean company demanding that R&D and manufacturing not be relocated to India. There was also disagreement over the price, with Videocon reportedly wanting to slash its offer price by 20%.

   Videocon also accused the Korean counterparts of breach of confidentiality after Daewoo Electronics president Lee Seung-Chang hinted that his company was looking for more investments from the new buyer without which the takeover would have no meaning.

   Domestic creditors, who own 97.5% of the unlisted firm, have been seeking to sell the controlling stake since November 2005. Daewoo Electronics is in the seventh year of a debt restructuring programme, following the collapse of the parent group in 1999 under a debt of $80 billion.

   Though a distant third player in South Korea, behind Samsung and LG, Daewoo Electronics has a strong brand recall in the developed markets, including the US and UK. It also has leadership position in certain segments in select markets, including Poland and Vietnam. It operates six plants in South Korea and 18 overseas.