A roadworthy way-out – Geely-Volvo deal marks nation’s first overseas M&As

By Huang Daohen

To buy or not to buy, that is the question.

Overseas mergers and acquisitions (MA) can make a “nobody” private company known, but ey bring grave risks. Caution has become the whispered buzz word of Chinese businessmen.

But Geely chairman Li Shufu was rebellious. Li confirmed last week that his company has reached a framework agreement with Ford Group to buy Volvo.

Is it a deal more roadworthy than it might appear – While China has overtaken the US as the world’s biggest auto market, he hopes to “sell cars made in China to the whole world, instead of letting forei cars enter.”

Geely to buy Volvo

The high-profile “Volvo sale” is finalized. Zhejiang Geely Group, the country’s largest automaker based on last year’s sales volume, announced on December 25 that it has reached a frark agreement with Ford Group to buy its luxury Swedish brand, Volvo Cars.

If everything goes smoothly, a definitive agreement will be signed in the first quarter of this year, the companies said. Government approval is expected by the second quarter.
 
Geely refused to say what it paid. But an unnamed source cited by Shanghai Security News said the company offered about $2 billion (13.7 billion yuan) for Volvo, a third of what Ford paid for it in 1999.

Ford began trying to unload Volvo last year after the Swedish automaker’s sales plummeted with the global market. In 2008, Volvo posted a loss of $1.5 billion.

But 12-year-old Geely is growing fast thanks to a domestic boom. On October 28, the company became Ford’s preferred bidder for Volvo.

Geely said it will open a Volvo factory in Beijing, choosing it over previously rumored sites Dongguan, Guangdong Province and Tianjin. The Beijing municipal government will also invest in the new plant, Xinhua reported.

The factory will be at E-Town Industry Park in the southeast.

Referring to the future of Volvo, Geely said “Volvo will retain its leadership in safety and environmental technologies, and will be positioned as a world-leading premium brand to exploit opportunities in the fast-growing Chinese market.”