India's leading consumer goods manufacturer, Videocon, is within an arm's length to acquiring South Korea's third largest electronics company, Daewoo Electronics, but certain riders attached by the ailing company relating to its takeover may persuade the Indian company to give it a second thought.

Recently, a consortium of India's leading electronics and energy major, Videocon Industries Limited and US fund Ripplewood Holdings emerged as the preferred bidder to buy South Korean appliances maker Daewoo Electronics.

According to sources close to the development, the creditors of Daewoo Electronics, including Wo-ori Bank and Korea Asset Management Corp., a State-run restructuring agency, were offered $ 700 million for their 97.5 percent stake in the company by the consortium.

The consortium is 50.1 percent owned by Videocon with the rest held by Ripplewood.

If successful, it will be the largest foreign capital takeover of a Korean manufacturing firm and Videocon's third major acquisition in less than two years. Earlier, Videocon had acquired Thomson's global picture tube business and the Indian operations of Electrolux.

The deal would also rank as the biggest foreign investment by an Indian private company overtaking Tatas which picked up 30 percent stake in the US-based beverage maker Energy Brands Inc. for $ 677 million.

However, the Korean company now has said that its research and development activities should not be shifted out of the country, but continue in Korea even after it is acquired.

Korea views India as a rival and does not want any R&D work to be done in India, sources close to the development said.

The Korean company is averse to idea of manufacturing unit being relocated to India, and has reservations about transfer of technology to the Indian company.

Daewoo's product range spans from CTVs including top-end segments like LCD & plasma to other categories like car audio, DVD & MP3 players, refrigerators, washing machines, air conditioners, microwave ovens and vacuum cleaners.

Though Daewoo Electronics is a distant third player in Korea, behind Samsung and LG, it has a strong brand recall in the developed markets including the US and the UK. It also has leadership position in certain segments in select markets including Poland and Vietnam. It operates six plants in South Korea and 18 overseas units.

Daewoo is not keen to pass on technology of high-end segments, mainly of manufacturing LCD and plasma TVs, to India.

It has also expressed unwillingness to go in for job cuts after the takeover by the Indian company.

The two companies are also at loggerheads over certain clauses in the non-disclosure agreement (NDA) signed recently in Mumbai. Videocon officials have accused their Korean counterparts of breach of confidentiality after Daewoo Electronics president Lee Seung-Chang hinted that his company was looking for more investments from the new buyer without which the takeover would have no meaning.

When contacted, Videocon group chairman V.N. Dhoot refused to comment on the issue.

Sources, however, said negotiations are on to resolve differences between the two sides.