BEIJING/HONG KONG (Reuters) - China's Geely on Monday completed its purchase of Ford Motor Co's F.N Volvo unit, marking China's biggest acquisition of a foreign car maker and reflecting the nation's rapid rise in the auto world.
Zhejiang Geely, parent of Hong Kong-listed Geely Automobile Holdings Ltd 0175.HK, said on Monday it paid $1.3 billion in cash and issued a $200 million note to Ford. That represents $300 million less than the previously reported headline number of $1.8 billion, but Ford said it would get a further "true-up" payment later in the year.
With the deal now done, the real challenge for Geely will lie ahead, as it aims to restore Volvo to long-term profits. Volvo Cars posted revenue of $12.4 billion in 2009 by selling 334,000 cars, but it recorded a pretax loss of $653 million.
Geely’s plan includes using the Swedish nameplate to produce luxury brands in China -- which passed the United States last year to become the world’s biggest auto market -- while maintaining its operations in Europe to supply the international market.
The deal was finalized at a handover ceremony in London attended by Li Shufu, chairman and founder of privately held Zhejiang Geely and now also chairman of Volvo.
“We’ve fulfilled our dream of acquiring Volvo, but that’s not the end of our plan; it’s only the starting point,” Li told Reuters in a London interview. “We’ve arrived at the foot of a big hill ... We hope and believe Volvo Cars will climb to the top of the mountain.”
Li, who said he believes the $1.5 billion will be “very close to the final number” Ford receives, wants Volvo to compete with the costliest sedans of BMW and Mercedes.
Volvo’s unions opposed the deal throughout much of the process over concerns that their jobs would be moved to China, but gradually were won over by Geely’s promises to keep the brand separate and continue production in Europe.
“With production, research and development and the headquarters remaining in Sweden and with China being the largest growth market for the automotive industry, we hope for a positive effect on employment,” said Stefan Lofven, head of the Swedish Industrial and Metal Workers’ Union. “It is good that the deal is now closed.”
The companies also announced that Stefan Jacoby, a former North American executive of Volkswagen AG VOWG.DE, has been named Volvo's new chief executive officer, confirming reports in the German media.
Former Volvo CEO Hans-Olov Olsson was also earlier named vice chairman of the board, having helped to shepherd the deal while working at Rothschild.
EQUIPPED FOR SUCCESS?
Despite China's dismal record at overseas acquisitions, Geely may be better equipped for success due to its experience working with foreign partners, including its acquisition of Australian gearbox maker Drivetrain Systems International and its tie-up with British cab maker Manganese Bronze Holdings Plc MNGS.L, said IHS Automotive analyst John Zeng before the official announcement.
“Geely is not a beginner in global M&A like many people think,” he said. “In China, Geely has established itself as a mass-market car maker; the acquisition of Volvo provides an opportunity to bring it to the next level.”
Geely’s Li got his start in refrigerator parts and motorcycles and has since been dubbed China’s Henry Ford.
Hong Kong-listed shares of Geely Automobile rose nearly 6 percent on Monday, versus a 1.8 percent rise in the Hang Seng Index .HSI.
Its shares surged nearly seven-fold last year as China’s auto market zoomed to become the world’s largest and enthusiasm mounted over the Volvo bid. They have given back some of those gains this year -- down 28 percent year to date, sharply underperforming a 2.1 percent decline for the Hang Seng.
Major new investment is a critical part of Li’s plan to turn Volvo around, including a new manufacturing facility in China that would nearly double the Swedish carmaker’s capacity to take advantage of China’s vast auto market.
A number of Chinese cities, including Beijing, Shanghai and Chengdu, are courting the firm for the manufacturing site, but no decision has been made so far.
Geely has said it is prepared to pump up to $900 million in capital into Volvo, on top of what it paid for the carmaker.
Geely’s plans would see its new Volvo China plant nearly double its annual global production, with an aim to sell 150,000 Volvo cars in China annually by 2015.
“For Geely, the deal could improve its brand image and awareness, which would in turn give its customers more confidence about its own future growth,” said Wang Jing, an analyst at Phillip Securities. “If it can’t run its own business well enough, it won’t have too much resources to put into Volvo. It is only a start,” she said.
Additional reporting by Michael Wei in Beijing, Quentin Webb and Michael Shields in London and Mia Shanley in Stockholm; Writing by Doug Young; Editing by Lincoln Feast, Jon Loades-Carter and Gerald E. McCormick
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