Geely may buy Volvo for less than $1.6 billion

• Source: Global Times
• [13:34 January 25 2010]
• Comments

One of China's largest private carmakers, Geely Holding Group may complete its deal with Ford Motor in purchasing Volvo on February 8 with an acquisition price expected to be less than $1.8 billion, but could be below $1.6 billion, according to the Chinese newspaper The Economic Observer, which cited an anonymous source close to the deal.

Ford Motor bought the Swedish auto brand in 1999 at a price of $6.45 billion. Once the American automaker signs the deal with Geely, it would lose over $4.6 billion.

The source said the net asset valuation of Volvo is more than $1.5 billion. "The acquisition gets support from the Chinese government," the person said. "Officers of the National Development and Reform Commission (NDRC) will go and meet with the Swedish industry minister to negotiate how to support the acquisition.

"No one can give the final date for such a big deal, though the two sides agreed to sign the deal on February 8," the source continued. "They will definitely sign the deal before the middle of next month."

Geely sought at least $1 billion in loans from Chinese banks to support its bid. At least three major Chinese banks, including Bank of China, China Construction Bank and Export-Import Bank of China agreed to extend loans to the automaker.

After the acquisition, Volvo will run as an independently operated company, and establish its headquarters in Beijing. The source revealed that Geely has almost finished registering China Geely International Investment in Beijing. This investment company has set up a branch company in Sweden to acquire Volvo.

The source says Geely will have an 80 percent stake in the investment company, and the remaining 20 percent is owned by "private capital and relevant banks."

The source said that after Geely bought Volvo, the company will continue to carry out the technical cooperation agreement between Volvo and Changan until the agreement expires, and the agreement has one-year transition period. Changan are now producing Volvo S80L and S40 models.

Geely has hired Deloitte & Touche LLP as its financial adviser for the transaction. The report of the valuation on the purchased net assets has been released, the source added.

Agencies and Shi Jierui contributed to this story