Mumbai, Nov. 5: Tata Motors today signed a binding agreement to snap up Daewoo Commercial Vehicle Company within two weeks of being selected as the preferred bidder for the South Korean truck-maker.
Sources say the Tatas will pay Rs 540 crore for the company, which opens a key beachhead for their global ambitions. Daewoo Commercial was, however, quoted by foreign news agencies as saying the expected price skips Rs 240 crore in unpaid bills and reserve needs.
The deal should be through in two to three months, after it is cleared by the governments in both countries, a string of other pacts are signed and a final due diligence of Daewoo Commercialís business is over.
The acquisition comes 20 days after Relianceís buyout of Flag Telecom for an unprecedented Rs 1,000 crore. That was corporate Indiaís biggest buy overseas. Tataís clincher today will be the largest foreign investment made by an Indian auto company abroad.
Executive directors Ravi Kant and Praveen P. Kadle signed on the dotted line on behalf of the Tatas, while court-appointed receiver Chae Kwang-Ok did so for Daewoo Commercial. A final contract could come by the year-end. The Tata Motors spokesman refused details, saying he cannot do so until the due diligence is completed.
Daewoo Commercial has 26 per cent of South Koreaís truck market. It produced 5000 trucks in a single shift last year, but has a capacity for 20,000. Its operating profits recently stood at $11 million (Rs 50 crore).
Industry watchers say the Korean company makes trucks with a capacity of 25 tonnes and above, powered by 250-to-400 horse-power engines. Its sale will signal the end of bankrupt Daewoo Motorís restructuring. The passenger car unit, the groupís mainstay, was acquired by General Motors and is called GM Daewoo Automotive Technology Co.
For Tata Motors, the impending acquisition comes at a time when its fortunes in the local automobile market are shining. It recently announced a four-fold increase in profit on the back of rising truck sales. Net profit rose to Rs 207 crore in second quarter ended September 30 from Rs 58.8 crore same time in the previous year. Net sales rose 46 per cent to Rs 3763 crore, while other income was up Rs 27.76 crore from Rs 3.99 crore.
Recent government initiatives on building a national highway network and a steady shift in favour of multi-axle trucks has helped the company make rapid progress.
Daewoo Commercial will offer a platform for a quick ramp-up in south-east Asia, including South Korea, Thailand and Malaysia. More important, it will enable the firm to break into China.