The Videocon Daewoo Merger
was valued at approximately 700 billion US dollars. Daewoo was the third largest electronics group in South Korea. A consortium lead by Aurangabad based Videocon bid for a 97.5% stake in Daewoo Electronics wherein Videocon owned 50.1% of the consortium. While the deal provided much needed investment to Daewoo, it also marked Videocon's third successful acquisition.
The Videocon Daewoo merger
took place in October 2006. Business circles though, were abuzz with new of this deal much before it was actually executed. The deal was valued at approximately at 700 billion US dollars an equivalent to almost Rs. 3,300 crores in Indian currency. However it was mentioned that the final price could change after a one month review from the date of agreement.
At the time of this merger, Daewoo, the third largest electronics group in South Korea was severely debt-ridden. Daewoo Electronics was part of the erstwhile Daewoo Group that ran into $80 billion debt in 1999 and ultimately collapsed. Daewoo's decision of a merger or acquisition was driven by the fact that it desperately needed investment to sustain its technology development.
The deal was bagged by a consortium that was lead by Aurangabad based Videocon. The other major partner in the consortium was Ripplewood Holdings, a private equity fund of the United States. The creditors of Daewoo Electronics were also included in the consortium. The consortium had bid for a 97.5% stake in Daewoo Electronics. Videocon, the major partner, owns 50.1 % of the consortium.
The Videocon led consortium was finally chosen based on the following -
- Complementary nature of business - Videocon is a leader in the Indian electronics industry.
- Financial consideration
- Investment commitments
- Acquisition track record
On the part of Daewoo the major benefit from the deal was the inflow of much needed investment. Without investments it was becoming increasingly difficult for this South Korean company to continue its operations. On the other hand, it was another feather in the cap of Videocon which had completed two major acquisitions before Daewoo. One was the takeover of the global picture tube business of Thompson for 240 million Euros (approximately Rs 1,260 crore in Indian currency). The other was the cashless takeover of the loss making Electrolux Kelvinator India.