Geely's bid for Volvo to benefit both: executives

10:17, March 29, 2010      

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China's Zhejiang Geely Holding Group purchased Ford Motor Company's Volvo car unit on March 28 in a deal worth 1.8 billion U.S. dollars. China's Minister of Industry and Information Technology Li Yizhong attended the signing ceremony held in a Volvo assembly plant based in Gothenburg, Sweden.

Under the definitive stock purchase deal, Geely will own 100 percent of Volvo Cars and its related assets, including intellectual property rights. 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.

Geely has secured all necessary financing to complete the transaction, he said, adding that Geely intends to preserve Volvo's existing manufacturing facilities in Sweden and Belgium, and explore opportunities to manufacture Volvo vehicles in China for the local market.

Li also disclosed that Geely started the program two years ago, and established a special team which was composed of experts from investment banks, law firms and accounting firms.

$1.8 billion, worth it or not?

The agreement includes terms on intellectual property rights, supply as well as research and development arrangements, said Geely.

The company will own 100 percent of Volvo brand, the intellectual property rights of Volvo's 9 series and three latest car platforms, production lines with capacity of around 600,000 cars annually, and Volvo's global marketing network and supplier base.

According to intermediary agencies' evaluation, Volvo's current net capital is over $1.5 billion and still has development potential. Geely's revenues in 2009 were $628.25 million, while Volvo's were around $15 billion.

Volvo has everything that Geely lacks, such as research and development capacity, cars and motors that meet Euro 6 and 7 emission standards and leading technology in the vehicle safety field.

Hua Yonghe, an expert with China Automotive Technology & Research Center, believes that Geely's purchase of Volvo will boost its competitiveness in China's domestic market, while providing an entry point for China's auto industry into the world market.

Why would a movie star marry a country boy?

There has been much conjecture within the industry about the possible buyers of Volvo car unit after Ford announced it was planning to sale in December 2008. Geely's purchase of the brand was really a surprise to many people.

"It was just like a country boy courting a moving star," said Geely's chairman Li Shufu.

Choosing Geely was in fact a choice of China. Hit by the global financial crisis, the world luxury auto market contracted severely in 2009. Mercedes-Benz, BMW and Audi all witnessed plunging sales.

The global financial crisis also brought Volvo negative profits. In 2009, Volvo's sales worldwide declined 10.6 percent to 335,000 units.

However, China's luxury auto market in 2009 grew with a high speed of over 40 percent, and Volvo's sales in China increased over 80 percent. For Volvo, it is obviously wise to choose Geely, a buyer based in China.

If the deal goes smoothly, Volvo can effectively gain more market share in China, and Geely will benefit, said Volvo car's CEO Stephen Armstrong.

By People's Daily Online
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