Ford Withdraws Its Offer to Buy Troubled Daewoo
After months of poring over the debt-riddled finances of Daewoo Motor Co., American auto giant Ford Motor Co. said Friday that it has dropped its $6.9-billion bid to buy the troubled South Korean car maker.
“Ford Motor Co. has decided not to make a final offer for the acquisition of Daewoo Motor,” Vice Chairman W. Wayne Booker said in a surprise announcement. “We believe that a proposal was not possible that would be in the best interest of Daewoo and Ford and their respective stakeholders.”
Ford had been named the winning bidder for Daewoo in June, beating out DaimlerChrysler, No. 1 South Korean auto maker Hyundai Motor Co. and a joint bid by General Motors Corp. and its Italian partner, Fiat.
But many industry analysts believed that Ford was overpaying for Daewoo, which almost went bankrupt in July 1999 and remains saddled with $16 billion in debt.
GM quickly said Friday that it would like to resume talks with Daewoo, but DaimlerChrysler said it had no interest in entering another bid.
Daewoo was once considered a must-have acquisition by a number of Western auto makers. It would offer an entry to South Korea’s largely closed auto market and an infrastructure to make small cars around the world.
But the chances of a deal with Ford probably started slipping away as soon as it was named the auction winner.
“Ford quite frankly started flipping rocks over and realized there was more than met their eyes, that their bid was much too healthy for the value of the company,” said Michael Robinet, director of forecasting services at the consultant group CSM Worldwide in Northville, Mich., near Detroit.
“With the due diligence they’ve been doing, I’m sure GM and Fiat probably realized a number of issues that Daewoo is not upfront about, and probably dialed that into their [unsuccessful] bid,” Robinet said.
Indeed, government regulators said Friday in Seoul that Daewoo Group, the parent conglomerate that owns Daewoo Motor, had falsified financial records to hide debts totaling $13.6 billion and exaggerate its assets by $7 billion. The government asked prosecutors to file charges against Daewoo Group founder Kim Woo Choong and 20 other former or current Daewoo executives.
Ford’s announcement came a day after the auto maker, No. 2 in global sales, said it would go ahead with a massive stock-buyback program worth $5 billion to return value to shareholders.
There had been speculation that Ford might postpone the buyback because of the pummeling the company is taking both publicly and on the stock market amid the massive Bridgestone/Firestone Inc. tire recall, announced Aug. 9 in the wake of dozens of deaths linked to accidents involving Firestone-equipped Ford Explorer sport-utility vehicles.
Ford has idled three truck plants to make available replacement tires for the Firestone tires that were recalled, and the shutdown will hurt earnings in at least the third quarter.
“The [buyback] timing is surprising to us in light of the Firestone recall--we thought the company would wait until year-end,” John Casesa, Merrill Lynch’s chief auto analyst, wrote in a research note to investors.
As of June 30, Ford had cash and equivalents (marketable securities that can be quickly converted to cash) totaling $25.6 billion.
“Given that we believe Ford has genuinely excess capital, the buyback is a favorable development,” Casesa said. He acknowledged that some may view the buyback decision as being facilitated by Ford’s decision to abandon the Daewoo deal, “but we doubt very much that the two decisions are connected.”
Ford shares closed unchanged Friday at $25.88 on the New York Stock Exchange.
Meanwhile, GM was quick to say it wanted to pick up where it left off. The company had been considered the front-runner because of a previous partnership with Daewoo, which made Pontiac Le Mans cars for GM.
“As we have said throughout the auction process, we continue to be interested in Daewoo Motor,” Rudy Schlais, president of GM Asia, said in a statement.
“We regret that Daewoo Motor has lost valuable time while its condition continues to deteriorate,” he said. “We need to better understand the situation and consult with our Fiat partner.”
But DaimlerChrysler said, in effect, no thanks.
“There is no interest on the part of DaimlerChrysler to get into bidding for Daewoo,” Vice President of Communications Tony Cervone said in an interview. “The business conditions have not improved to make us revisit the situation.”
Thus Daewoo’s fate lies in whether GM resurrects its bid. If that falls through, parts of Daewoo are likely to be absorbed by Hyundai and other assets sold off, such as plants in Poland and Romania.
