China's Geely Acquisition of Volvo Car Corporation

After more than a year of talks, Zhejiang Geely Automotive Group finally acquired Volvo Car Corporation from Ford Motor Company in August 2010. The acquisition was transacted at USD 1.8 billion, by far the most ambitious act that a Chinese vehicle manufacturer has attempted in its pursuit to penetrate the global automotive market. Out of the USD 1.8 billion payment, USD 200 million was a note with the remaining balance paid in cash. Funding for the acquisition was obtained through financing from Chinese institutions, Geely’s own balance sheet, and international capital market resources.

Although Geely is a young company with automobile production starting in 1998, it aims for China-branded cars to be competitive on a global platform. With regards to this, Geely’s Chairman Li Shufu recognizes that the approach of selling affordable cars to entry-level Chinese consumers will be different from selling China-branded cars to experienced consumers in mature markets. As such, when Ford announced its intention to sell Volvo in bid to streamline its operations to focus on its core mass-market brands, Geely saw it as an opportunity to accelerate its progress into experienced markets.

Despite being under the same company, Geely and Volvo will maintain separate operations. Volvo will retain its headquarters and manufacturing facilities in Sweden and Belgium, and Volvo’s management are given the autonomy to carry out its own business plans under the strategic direction of the board. Furthermore, Ford will continue its components and supply relationships with Volvo, ensuring that all prior interdependence on supply will not be disrupted.