Ford Motor Co agreed with China’s Zhejiang Geely Holding Group Co on most terms about a sale of its Volvo Car Corp unit and the automakers aim to complete the transaction in the second quarter.
A definitive sale agreement will probably be signed in the first three months of 2010, the companies said in statements today. No financial details were given. Ford has been making progress to resolve issues such as protection of intellectual property, a person familiar with the talks has said.
Ford named Geely its preferred bidder for Volvo on October 28 after putting the Swedish automaker on the block a year ago to finish unloading overseas luxury brands and focus on its namesake division. Geely is offering about $2 billion, less than one-third what the Dearborn, Michigan-based manufacturer paid for Volvo a decade ago, people familiar with the bid have said.
“It gives Geely a very good platform — an established brand, a presence,” said Stephen Pope, chief global equity strategist at Cantor Fitzgerald in London. “If they’ve got the deep pockets so they can put money into the R&D and modern design, they should be able to take the brand further forward.”
Geely, China’s largest private automaker based on last year’s sales, wants to gain insights into Western vehicle development and manufacturing through buying a mainstream European brand, people familiar with the negotiations have said.
Ford sold Aston Martin in 2007 and Jaguar and Land Rover in 2008. It acquired Volvo in 1999 for $6.45 billion from Volvo AB, the world’s second-largest truckmaker. Volvo Car has about 20,000 workers worldwide, of which 15,000 are in Sweden. It has cut some 6,000 jobs since last year and lowered annual salary costs in a March deal with the unions.
The announcement came after the close of trading in Hong Kong. Geely Automobile Holdings Ltd, Zhejiang Geely’s listed unit, jumped 7.3 per cent to HK$3.98 on the city’s stock exchange, the steepest increase since November 30. The shares have risen sixfold this year. Ford added 2.4 per cent to $9.90 in New York trading yesterday.
“The prospective sale would ensure Volvo has the resources, including the capital investment, necessary to further strengthen the business and build its global franchise, while enabling Ford to continue to focus on and implement its core One Ford strategy,” Ford said.
Ford and Geely have agreed on “all substantial commercial terms” about Volvo, the US manufacturer said. The deal is subject to regulatory approvals.
Volvo is on track toward selling about 325,000 cars this year, up from the 310,000 vehicles last year and down 29 per cent from 2007, its best-ever year when it sold 460,000 cars, Glenn Magnusson, head of the Ledarna union at Volvo, said in a telephone interview today.
In the third quarter, Volvo narrowed its pretax operating loss to $135 million from a $458 million loss a year earlier, Ford said last month.
Geely Automobile is part of Li Shufu’s Geely Group. Zhejiang Geely, owned 90 per cent by Li and 10 per cent by his son, is the ultimate holding company for the group.
Zhejiang Geely is seeking Chinese government support for the takeover of Volvo, based in Gothenburg, two people familiar with the discussions have said. The company has hired Germany- based Roland Berger Strategy Consultants for advice on restructuring, the people said.
Geely is planning to build a Volvo factory in China after the purchase is completed, two people familiar with the proposal have said. The automaker may build the plant in Beijing, the people said declining to be identified as the discussions are private. The automaker is also considering two other Chinese cities for the facility, they said.
“Acquiring Volvo is merely the first step and far from being the most important one for Geely,” said Zhang Xin, an analyst with Guotai Junan Securities Co in Beijing. “It is a much bigger challenge for Geely to actually make use of what they will buy and make profit out of it.”
Konsortium Jakob AB, the investor group founded by Volvo engineers that has also expressed interest in Volvo, hasn’t given up, its spokesman Ola Johansson said today. “Jakob is still interested if the seller would invite us to the negotiation table,” Johansson said in a phone interview.
