Hyundai Motor (HM) is likely to be squeezed out of the Korean government's auction of Daewoo Motor (DM), given the restricted access it now has to affiliates' finances and the unwillingness of other potential bidders to take on the anti-trust baggage it would bring to a partnership.
The fact HM is still in the race and making noises appears to be little more than a face-saving exercise after controversial changes at the top of the Hyundai Group (HG), Korea's largest chaebol. HG founder Chung Ju-yung last week named Chung Mon-hun (MH), one of his younger sons, to take over as chairman of HG, while MH's elder brother Chung Mon-koo (MK) was announced chairman of the auto unit. Prior to the announcement the two Chung brothers had been co-chairmen of HG since 1998.
ABN Amro analyst Richard Biggs estimates that on its own HM could easily raise W1.5 trillion ($1.35 billion), though this is a far cry from the W7.0 to 8.0 trillion the market expects DM to fetch. Assistance from other parts of the HG family of companies is likely to be restricted given MH's animosity towards to MK.
"The younger brother has no interest in helping HM," says Biggs.
"HM buying DM did not make much sense before, it makes even less now," he adds.
In the unlikely event HM, which aims to become one of the top five automakers in the world by 2010, did assemble the necessary firepower for a bid, the government would likely block it on competition grounds since the company already has 71% of the Korean car market and DM a 27% share.
This is the first sell-off of a Daewoo Group unit and as such has attracted keen interest from potential bidders for other parts of the chaebol; selling to a domestic bidder and establishing a monopoly would likely dampen future interest.
"I don't think that is the kind of message the government wants to send," says Mark Barclay, analyst at Samsung Securities.
That leaves HM in need of a partner alongside which it could bid for a minority stake. However, none of the four western automakers in the bidding, namely Ford Motor, General Motors, Fiat and DaimlerChrysler, have so far declared any interest in teaming up with HM. The foreign bidders are nonetheless aware a local partner would help make any DM acquisition a less bitter pill to swallow for the Korean public, the target's labour unions, and certain politicians. The companies involved will not want to allay these nationalist concerns only to incur the wrath of Korea's competition authorities.
Within the auto industry, the only other Korean player is debt-laden Samsung Motors, currently the subject of advanced takeover talks with France's Renault. General Motors has said it would consider bidding for DM with a local partner if such an alliance offered advantages in terms of labour, technology or finance. The Korea Federation of Small Businesses has been mentioned as a possible partner by Allen Parridon, General Motors president for strategic alliances.
Of the four foreign companies in the bidding for DM, General Motors, which supposedly made a $6 billion pre-emptive bid in December, and American rival Ford are considered the favourites to win. Although free to bid separately, Fiat is already allied with General Motors following a share-swap last month and DaimlerChrysler has just this week bought a 34% stake in Mitsubishi Motors of Japan for 2.1 billion euro ($2 billion). Japanese automakers will be allowed to sell in Korea before the end of this year.