China's Geely to buy Ford's Volvo in record deal




By Ola Kinnander and Keith Naughton, BloombergMarch 29, 2010Comments (19)









The head office of Chinese carmaker Zhejiang Geely Holding in Hangzhou, east China's Zhejiang province on March 29, 2010.

Photograph by: STR/AFP/Getty Images, The Windsor Star




Zhejiang Geely Holding Co. agreed to buy Volvo Cars from Ford Motor Co. for US$1.8 billion in the biggest overseas acquisition by a Chinese automaker, more than 18 months after the two companies first entered discussions.
The price includes a $200 million note and the remainder to be paid in cash, Ford Chief Financial Officer Lewis Booth said yesterday in Gothenburg, Sweden. Time spent on seeking regulatory approval in different jurisdictions means the companies now aim to complete the deal in the third quarter, Geely Chairman Li Shufu said.
Booming sales made China the world's largest car market in 2009, generating profit that's allowing automakers to reach out to Western markets and technologies. Divesting Volvo completes Ford Chief Executive Officer Alan Mulally's strategy of exiting European luxury lines to focus on his company's namesake brand after the 2007 sale of Aston Martin, and of Jaguar and Land Rover to Tata Motors Ltd. for $2.4 billion the following year.
"If I were a competitor to Geely in China and all of a sudden I would lose ground to my competitor because they acquired Volvo, I would look to do the same," Mike Tyndall, an automotive specialist with Nomura Securities in London, said in a telephone interview. "The experience of both Tata and Geely will be the real test."
Geely Automobile Holdings Ltd., the automaker's listed unit, gained 1.5 percent to HK$4.16 in Hong Kong trading. Ford rose 12 cents to $13.98 at 8:04 a.m. before regular New York Stock Exchange composite trading, extending a surge of 39 percent this year through March 26.
Yesterday's agreement includes terms regarding intellectual property rights and supply as well as research and development, Geely said. The Chinese company will help Volvo, whose headquarters will stay in Gothenburg, tap China's growing market, Li said at a joint press conference with Ford.
Tata, India's biggest truckmaker, reported its first profit in the quarter ended in December after paying off the remaining debt from the Jaguar and Land Rover acquisition in October by raising $750 million. Tata plans to have seven Jaguar and Land Rover dealerships in India this fiscal year, including ones currently operating in Mumbai and New Delhi.
As part of its efforts to increase the Indian company's sales abroad, Tata last month hired Carl-Peter Forster, a former General Motors Co. and Bayerische Motoren Werke AG executive, as chief executive, based in the company's Mumbai headquarters. Forster will be responsible for reviving the slumping luxury brands that Tata bought from Ford while increasing sales of the $2,500 Nano, the cheapest car in the world. Tata's stock has risen 13.8 percent since the Jaguar and Land Rover deal was announced in March 2008.
"I see Volvo as a tiger: it belongs to the forest and shouldn't be contained in the zoo," Li said in Mandarin. "The heart of the tiger is in Sweden and Belgium," he said, referring to the two countries where Volvo has its main plants. "Its paws should extend all across the world."
Volvo plans to produce 390,000 cars this year, compared with 330,000 in 2009, CEO Stephen Odell said. Geely will restore profitability to Volvo, according to Ford's Booth.
Ford will continue to supply Volvo powertrains, stampings and some vehicle components. It also agreed to provide engineering and technology support, and access to tooling for common components for an unspecified period.
The Swedish carmaker's S40 model is built on the mechanical foundation of the Ford Focus now sold in Europe. Volvo supplies diesel engines for Ford's European lineup.
"We have continued to invest in Volvo, just as we did at Jaguar Land Rover, to make sure that our employees and now our ex-employees at Jaguar Land Rover are going to be working in a place that has good potential for the future," Booth said in a March 24 interview.
In February, Jaguar Land Rover reported its first quarterly profit since being bought by Tata Motors after shedding staff and boosting sales of luxury cars.
Geely first approached Dearborn, Michigan-based Ford about buying Volvo in mid-2008, two people familiar with the talks have said. Ford named Geely its "preferred bidder" in October and said on Dec. 23 that they had agreed on the major terms of the transaction.
The cash portion of the purchase price will be adjusted for Volvo's pension deficits, debt, cash and working capital, which could mean a "significant decrease" in proceeds to Ford, the U.S. carmaker said.
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