China’s Zhejiang Geely Holding Group has secured a financing of $2.7 billion to acquire the Swedish brand Volvo from Ford Motor (F). Geely would pay $1.8 billion for the unit, much less than $6.45 billion that Ford paid for it in 1999.
The price includes a $200 million note presented by Ford, with the remaining $1.6 billion to be paid out in cash. Geely will make the cash payment partly by using its own funds and partly by using an undisclosed amount of loans that it has procured from 3 major Chinese banks – the Bank of China, China Construction Bank and Export-Import Bank of China.
The surplus $900 million that Geely has secured through loan will be used for working capital to run the unit as well as for sustaining the unit during the economic downturn. It is still unclear from whom Geely has secured this fund.
Last Sunday, the two companies signed a binding deal for the sale of the unit. The deal also included agreements between Volvo, Geely and Ford with regard to intellectual property rights, research and development supports and supply of common parts and services for a transition period to smoothen the separation.
Geely has been eager to tap China’s high-growth auto market by acquiring modern, innovative technologies from the Swedish brand to upgrade its car line-up. The automaker expects robust growth in China’s auto industry in 2010. In this situation, upgrading the product line-up would no doubt benefit the automaker.
Besides retaining Volvo’s existing manufacturing facilities in Sweden and Belgium, Geely plans to expand the unit’s operations in its home country. The company’s sources revealed that Volvo Cars will be segregated from its other operations and will be set up with its own Sweden-based management team and a new board of directors.
Currently, Volvo has 10 models in the global market, including its best-seller crossover XC60. Its three biggest markets are the U.S., Sweden and the U.K. In 2009, as many as 334,808 Volvo cars were sold globally.
Ford had put up Volvo for sale in December 2008 in an effort to cut costs and raise cash amidst plunging auto sales and focus on its core Ford, Lincoln and Mercury brands.
Ford had discussions with many automakers to sell Volvo, including Renault SA, China’s third-largest automaker, Dongfeng Motor Group and fifth-largest automaker Beijing Automotive Industry Holding Corp. However, in October 2008, the automaker disclosed that the preferred bidder for the unit was Geely.
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