Zhejiang Geely Holding Group signed a binding deal Sunday to buy Ford Motor Co.’s Volvo Cars unit for $1.8 billion, representing a coup for the independent Chinese automaker which is aiming to expand in Europe.
The stock purchase agreement is subject to regulatory approvals and is expected to be completed in the third quarter, representatives of the two automakers said as they presented the deal at a news conference at Volvo Cars headquarters in Goteborg, on Sweden’s west coast.
The agreement was signed by Geely’s chairman, Li Shufu and Ford Chief Financial Officer Lewis Booth, and witnessed by Li Yizhong, the Chinese minister of industry and information technology, as well as Swedish Minister for Enterprise and Energy Maud Olofsson.
The transaction will be made through a $200 million note, while the remainder will be paid out in cash, Booth said at the Webcast news conference.
“We think it’s a fair price for a good business, and yes, we’re happy with the deal we’ve achieved with Geely,” he said, adding that his company believes that, under Geely, “Volvo can continue to build its business and return to profitability.”
The deal also covers further agreements on intellectual property rights, supply, and research and development arrangements between Volvo Cars, Geely and Ford.
Li, whose comments were translated by an interpreter, described the deal as “a milestone” for both Geely and Volvo, adding his group will make a Volvo CEO public “in due course.”
In a statement, Geely said it has secured all the financing necessary to complete the deal, as well as “significant working capital facilities to fund Volvo Cars’ ongoing business.”
Geely said it aims to keep Volvo’s existing manufacturing facilities in Sweden and Belgium, but that it will also explore manufacturing opportunities in China.
“China, the largest car market in the world, will become Volvo’s second home market. Volvo will be uniquely positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing China market,” Li said.
Ford, which bought Volvo Cars from AB Volvo in 1999 for $6.45 billion, has been trying to sell the unit since late 2008 to focus its resources on managing its core Ford, Lincoln and Mercury brands.
As Western automakers unload unprofitable assets, they are finding keen buyers in Asia.
In 2008, Ford sold its Jaguar and Land Rover brands to India’s Tata Motors Ltd. for $1.7 billion, a third of what it paid for them. In addition, General Motors Co. attempted to sell its rugged Hummer brand to a Chinese heavy equipment maker, but is now winding that brand down as the deal collapsed.
China’s Beijing Automotive Industry Holdings has also agreed to buy some powertrain technology from GM’s Swedish Saab unit.
Geely, an independent automaker that has struggled to upgrade its image in overseas markets, has long coveted a bigger foothold in Europe and has earlier been rumored to be bidding for Opel and Saab. The long-awaited Volvo acquisition is therefor important for the company, which has gradually built its business with little government support.
Analyst Zhang Xin, with Guotai Junan Securities in Beijing, said Geely has pledged to keep Volvo’s factory and business teams in Sweden after the takeover, limiting its leeway to cut costs.
“Reality is always much crueler than what people would wish. Geely wants to build itself as a new ‘international Geely,’ so they sought a strong foreign brand like Volvo,” Zhang said.
“Geely should foresee many difficulties. How will it manage to run Volvo well? How will it deal with the factory and employees? How much more will Geely have to spend to operate Volvo?”
Volvo, whose first car left its Swedish factory in 1927, employs nearly 20,000 workers, most of them based in Sweden. The group, initially a subsidiary of ballberaing maker SKF, was listed on the stock exchange in 1935.
In 2009, it sold 334,808 cars. It currently has 10 models on the global market, with its cross-over XC60 being the best-seller. The United States, Sweden and Britain account for its three biggest markets.