SEOUL -- Shanghai Automotive Industry Corp. (SAIC), China's second-largest vehicle maker, signed a deal on Tuesday to buy Ssangyong Motor Co. and said it would help the South Korean sport utility vehicle maker expand in the fast-growing Chinese market.
Neither company disclosed a price, but one newspaper valued the deal at $500 million, a 40 percent premium over Ssangyong's current stock price.
"It's a mutually beneficial deal," said Lim Dong-soo, an auto analyst at Nomura Securities Co. "It gives SAIC much-needed SUV technology."
The two sides are expected to sign a definitive agreement on the sale by September.
Ssangyong, South Korea's fourth-largest car firm, has been for sale since creditors took control of the debt-ridden firm in 1999 when its parent Daewoo Group collapsed under a mountain of debt.
For state-owned SAIC, a Chinese partner of General Motors and Volkswagen AG's Shanghai ventures, this would be a second stake buy in the failed Daewoo Group. It teamed up with GM and Japan's Suzuki Corp. in 2002 to buy Daewoo Motors.
Ssangyong, which builds Rexton, Korando and Musso SUVs as well as luxury Chairman cars, has annual capacity to produce 200,000 vehicles and plans to double production by 2007.
It sold 320 SUVs and 2,208 complete knock down kits (CKDs) of its 9-seater minibus to China in the first half year, accounting for 17 percent of total exports.
Its total sales were 154,307 last year, including 23,024 units exported mainly to Europe and South America.
"SAIC will explore jointly with Ssangyong ways to expand its business internationally, including in China," SAIC Chief Executive Hu Maoyuan told reporters after signing the binding deal.
Hu declined to give details, but said SAIC would invest to improve Ssangyong's existing facilities and retain the current management team and employees.
The Chosun Ilbo newspaper said SAIC agreed to pay $500 million for Ssangyong's 48.9 percent held by creditors, and would raise its stake to 51 percent by acquiring shares owned by Daewoo Heavy Industries Co. and others.
The report, citing creditor and SAIC sources, said the Chinese firm would pay about 10,000 won ($8.61) per share.
Ssangyong shares closed at 7,000 won on Tuesday, down 4.1 percent after rising 2 percent on Monday.
Ssangyong and SAIC, which was named last Friday as the preferred negotiator, declined to comment on the Chosun report.
"The 10,000 won per share sounds an appropriate level for both sides, considering the management premium," said Kim Hak-soo, analyst at Samsung Securities Co.
Ssangyong has a market value of $751 million, but is saddled with 1.32 trillion won of debt. Its net profit jumped 84 percent last year to 589.6 billion won on cost cutting and robust sales.
Kim said Ssangyong faced increased competition at home from rivals such as GM Daewoo and Hyundai Motor Co., which plan to roll out new SUVs in 2005 in South Korea, where four out of 10 people buy SUVs instead of other cars.
SAIC appointed Deutsche Bank, Merrill Lynch and Morgan Stanley to help arrange an overseas initial public offering that could be worth $2 billion, a source familiar with the plan said last week.