Videocon may agree to a less than 10% cut in bid price for Daewoo Electronics; budges from earlier demand of a 15% cut

Controversy seems to be seeping into the deal involving the Videocon-Ripplewood combine and Daewoo Electronics. After proving to be the final bidder for Daewoo for $730-750 mn, Videocon had demanded a cut of 15% in the bid price. However, the 40 banks controlling Daewoo Electronics, which has been under a creditor-led debt-restructuring programme since 2000, after its insolvent parent Daewoo Group was put under the workout programme post its collapse under a $80 bn debt, have vetoed the issue.

Videocon is worried about losing out on a global deal, which would bring with it tremendous capabilities in terms of scale and distribution. Also, Daewoo’s creditors are understood to be under pressure from locals for selling the plant to a foreign hand; the Koreans have opposed Videocon’s bid following concerns of technology leaks and opposition over the migration of technology to Korea’s potential rival, India. Accordingly, Videocon has decided to settle for a less than 10% cut in the offer price. Videocon is now willing to settle for the ‘best possible business terms’ for both parties, rather than lose out on the deal. If both parties come to a consensus, the final deal is likely to be signed after another month’s delay. The deal was earlier supposed to be signed sometime in December last year.

Daewoo is estimated to have global sales of about $2.5bn, whereas Videocon Industries’ consumer electronics business is currently generating revenues of about $1.5 bn. The Videocon-led consortium emerged as the preferred bidder to buy a controlling 97.6% stake in Daewoo Electronics.

Read The Economic Times and Business Standard articles – 1 2 3 .

Videocon’s Daewoo acquisition in jeopardy

Videocon along with US-based private equity firm Ripplewood have proposed a price cut of up to 13% on the $730 mn acquisition of Daewoo Electronics after conducting due diligence of Daewoo. This has not gone down well with the creditors of Daewoo who are collectively running the company since the Daewoo conglomerate collapsed under $80 mn debt in 1999.

The creditors, led by Woori Bank, are going to come to a decision regarding the price cut in the first week of January 2007. Unless more than 75% of the creditors agree to the proposal, the deal would be cancelled. In case creditors did not agree to the price cut, the process for sale of the ailing company would have to start afresh. Videocon officials refused to comment on the issue.

Read The Financial Express article.