How Geely wooed Volvo

16:06, March 31, 2010      

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On Dec. 4, 2008, the Ford motors announced it was seeking to sell its Volvo car unit. Since then, the industry has spent much time speculating about where the luxurious brand would land. The Chinese auto producer Geely Automobile Holdings was interested from the very start. But it still came as a surprise to many when such a Chinese private enterprise became the preferred bidder and finally won in the end.

Li Shufu, the president of Geely, has a figure of speech saying that it is like "The village boy is pursuing a international movie star" since Volvo and Geely are mismatched in the eyes of some people. So why did Ford motors choose Geely?

First, since Ford motors purchased Volvo in 1999 for 6.4 billion dollars, Volvo's sales have been continually dropping, and the brand never has been truly profitable. With the spread of international economic crisis in 2008, the Volvo was in a great deficit. It became a heavy burden to Ford motors that face the danger of bankruptcy and reorganization on its own. In 2009, the global sales of Volvo were 335,000, down nearly 10 percent than last year. To sell such a big deficit-maker and get precious circulation capital was a top priority for Ford motors, which saw initial success with the "One Ford" plan.

Second, to choosing Geely means choosing China. Stricken by the international economic crisis, the global market for luxury cars shrunk by a big margin in 2009. The sales of such front line groups as Mercedes-Benz, BMW and Audi all decreased substantially. But at the same time, the luxurious car market in China increased by more than 40 percent, among which Benz increased by 77 percent, BMW 38 percent, Audi 33.1 percent, and Volvo up 80 percent in particular. So if the Volvo car wants to overcome deficit and become profitable, the Chinese buyer Geely is a wise choice.

Besides, other factors also weigh much in Geely's final win, including the rapid development of Geely in recent year, its respect for intellectual property, a series of breakthroughs in core technology, the learning-oriented enterprise culture, successful experiences of overseas purchases and the ambitious development plan drawn up for Volvo.

Just like other overseas purchases, the Geely-Volvo courtship did not proceed smoothly without a hitch. After the agreement of all major commercial clauses of the purchase on Dec. 23 last year, both sides continued to bitter negotiations for three more months. The details of those negotiations are still unknown. But according to the overseas media, several issues endangered the deal. Among them were doubts by Volvo's workers' union, concerns about Ford and Volvo's common intellectual property and the special requirement of Ford on the acquisition capital at the last minute

At the zero hour, the super negotiation team composed of the world's top accountants, lawyers, investment banks, specialists on transnational acquisition and talented persons from Geely group, solved the problems one-by-one with their experience and sincerity.

Geely President Li Shufu's personal charisma also played a critical role. During the negation with the Volvo workers' union, Li was asked to describe Geely's advantage over other competitors in only three words. Facing such a difficult question, Li answered "I love you," which relieved the tension immediately.

Since the outbreak of international economic crisis, overseas acquisition has become a hot topic among Chinese enterprises. But few manufacturing enterprises have succeeded in doing so during the last one year. However, Geely, the "village boy," made the hat-trick after purchasing the British Manganese Bronze Holding in October 2006, acquiring Australian DSI in March 2009, and finally the marriage with the "international superstar" Volvo. This case definitely offers precious experiences for overseas acquisition of Chinese enterprises.

By People's Daily Online
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