In the late 1990s, the leading South Korean car manufacturer, Daewoo Motors (Daewoo), was in deep financial trouble. For the financial year ending 1999-2000, Daewoo generated revenues of $197.8 million and net loss after tax of $10.43 billion. The company's revenues had dropped by 94 percent since 1999. The loss was regarded as South Korea's largest ever corporate loss. Apart from this, the company's domestic market share came down to 23 percent in 2000 from 33 percent in 1998. According to analysts, borrowings by the company for its expansion programs were considered the reasons for the losses. By December 1999, the company's domestic and foreign debt amounted to more than $16.06 billion. The entry into risky markets and selling products at very low price in order to gain market share are the other reasons that affected the company's financial condition. Even there was labour unrest, which aggravated the problem. However, some analysts felt that the primary reason for Daewoo's problems was mismanagement and the corrupt corporate governance practices adopted by Kim Woo Choong (KIM), the founder of the Daewoo group. In 1999, Kim came up with a restructuring plan. He planned to sell about $7.5 billion worth of assets of other companies of the group and concentrate on the automobiles and finance business. Though the creditors appreciated the plan, it seemed difficult to execute. Kim planned to sell Daewoo Group's shipyards to a Japanese company, but Japan was planning to reduce its own shipyards by 50 percent. Kim also planned to exchange the Group's electronics business for the Samsung Group's car division. However, Samsung was not interested in buying the debt-ridden Daewoo electronics. Since Kim was not able to execute his restructuring plan successfully, in July 1999, the South Korean government declared Daewoo insolvent and put the company on sale. In November 2000, the Korean Government officially announced Daewoo's bankruptcy and its assets were put on sale. The government also set up a committee for restructuring Daewoo. Around the same time when the company was about to be announced bankrupt, General Motors (GM), Ford and Daimler-Chrysler expressed interest in acquiring Daewoo. By June 2000, Ford entered into negotiations with the committee. However, after a few months of negotiations, Ford reported that its due diligence had revealed some discrepancies in Daewoo's valuation of its assets. In September 2000, Ford announced the withdrawal of its offer, citing the discrepancies in Daewoo's accounts as the primary reason. From August 2000, Daewoo stopped paying its 19,000 employees since further loans were not sanctioned to the company. Meanwhile, Daewoo employees opposed the sale of the company to a foreign automaker. There were strikes at all Daewoo plants in Korea. One of the South Korea's largest trade union groups, Korean Confederation of Trade Unions, also protested the sell-off. There were also protests from a group of activists comprising some high-profile members of the country. The group launched a campaign offering to buy Daewoo and name it a 'people's company." In October 2000, GM and its partners, including Isuzu Motors, Fuji Heavy Industries and Suzuki Motors, announced their interest in acquiring a part of Daewoo's assets. GM also insisted on the completion of the restructuring plan, which involved laying off hundreds of workers at various Daewoo plants. Amidst revolts and controversies, an agreement was reached between the Korean government and GM in September 2001. GM signed a memorandum of understanding with Daewoo's creditors to acquire two plants in Korea and one each in Egypt and Vietnam, along with all their outstanding debts for $1.2 billion. The agreement also included the acquisition of 22 sales units of the company across the world. However, this agreement ran into problems when GM reported a discrepancy in Daewoo's overseas accounts. In February 2002, GM made a renewed bid for some of the Daewoo's assets to its main creditor KDB. In this bid, GM expressed interest in only nine sales units of Daewoo as against the earlier 22. It also refused to pay the $260 million debt of these units as it had discovered new debts in some of Daewoo's overseas operations, including Daewoo's plant in Egypt. In April 2002, GM and Daewoo's creditors arrived at an agreement. According to this agreement, GM would create a new company which would be owned jointly by Daewoo's creditors and GM. GM would own a 75 percent stake in the new company, with an investment of $400 million. Creditors were to pay $137 million for the remaining 33 percent stake. According to analysts, GM's acquisition of Daewoo seemed to be the ideal solution for the latter's problems. An analyst commented, "GM badly needs Daewoo to establish a beachhead in the Asian market. And without GM, Daewoo will simply collapse." They also opined that GM was the ideal buyer as it had owned a 50 percent stake in Daewoo till 1992. Analysts felt that in the long run, GM could use Daewoo to gain a foothold in Asia. Moreover, GM was facing problems in the US. Tough its sales were more than those of Daimler-Chrysler and Ford, GM's net earning were decreasing. Prior to the acquisition, GM depended solely on its European subsidiary Ada Opel to manufacture small cars for developing countries. However, some analysts felt that restoring Daewoo's brand image would require a lot of time and money. Alan Perriton, who was in charge of GM's business development in Asia, commented, "Daewoo's acquisition gives us high-quality, low-cost products for the rest of Asia. However, sales have been hit so badly because Koreans weren't sure Daewoo would survive. We have to let customers know that the company is back in business and stand behind its products." However, some analysts felt that GM was adding to its problems by acquiring a company like Daewoo.

1. In 1999, Kim Woo Choong (KIM), the founder of the Daewoo group, came up with a restructuring plan. He planned to sell about $7.5 billion worth of assets of other companies of the group and concentrate on the automobiles and finance business. Kim planned to sell Daewoo Group's shipyards to a Japanese company. Kim also planned to exchange the Group's electronics business for Samsung Group's car division. What could be the reasons behind Kim's decision to sell Daewoo Group's shipyards and electronics? 2. GM had expressed interest in Daewoo at a time when most automobile manufacturers had shown disinterest towards Daewoo. Explain why GM was interested in Daewoo and how Daewoo will benefit after being acquired by GM?