Videocon's Daewoo bid in troubled waters

Videocon Industries' ambitious plan to take over Daewoo Electronics for $750 million is in troubled waters, with the creditors not agreeing to a proposal to reduce the acquisition cost.

The combined shareholding of the creditors in the Korean firm is 97.5 per cent.

The Videocon-led consortium had agreed two months ago to pay Daewoo's creditors won 700 million ( $750 million) for the ailing Daewoo, subject to due diligence. RHJ International, a part of the US private equity fund Ripplewood, is the other member of the consortium.

London's Financial Times carried a news report quoting an executive of Woori Bank, Daewoo's biggest creditor, that the proposed deal could be nullified, depending on the response of the creditors.

The proposal, which is believed to have reduced the price tag of the acquisition by 13 per cent, needs support from more than 75 per cent of the creditors to be carried. The deal will be cancelled otherwise.

"We expect it will take one or two days to get the result as each of the creditors has to choose whether they agree or disagree with Videocon's proposal," a Woori Bank executive was quoted as saying in the British newspaper.

"The negotiations, however, will be resumed if the Videocon consortium proposes an acceptable amendment," added the Woori Bank executive.

The creditors were due to hold a meeting to consider the proposal yesterday but instead decided to seek a written response.

However, Venugopal N Dhoot, chairman, Videocon Industries categorically denied that his consortium had asked for a revised price. Dhoot told Business Standard, "We have not requested for any revised price in the bidding amount for Daewoo Electronics."

He added, "We are very excited and hopeful that we finalise the deal by next week. Discussions are on and the result would be known post the new year holidays."

The proposed acquisition fits into Videocon's strategy to become an Indian multinational as Daewoo operates six plants in South Korea and 18 overseas units.

In 2005, Videocon acquired French firm Thomson SA's colour picture tube manufacturing business for $ 129 million, followed by acquiring the Indian unit of Swedish firm Electrolux for $76 million.

Daewoo Electronics has been run by creditors since the Daewoo conglomerate collapsed under $ 80bn of debt in 1999. The company has undergone a radical restructuring aimed at returning it to profit. Although it ranks a distant third in Korea behind Samsung Electronics and LG Electronics, Daewoo's substantial sales in Europe and the US make it appealing to overseas bidders.

The company had posted a net loss of 94 billion won in 2005 from a 30.4 billion won net profit in 2004, according to the company's audit report, as a stronger won put pressure on its export-led business.