Deal Boosts China's Heft In Vehicle Industry -- WSJ

12/28/17 02:47 AM EST
By Trefor Moss 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (December 28, 2017).

SHANGHAI -- A Chinese car maker said Wednesday it would buy a $3.24 billion stake in Swedish truck-and-bus maker Volvo AB, another sign of the appetite among Chinese companies for global automotive assets.

Zhejiang Geely Holding Group Co., which owns Volvo Cars, said it had reached an agreement with Cevian Capital to acquire the investment firm's entire 8.2% equity stake and 15.6% voting rights in Volvo AB, making it one of the largest shareholders in the company.

The move marks a further step by Geely -- by far China's most-acquisitive auto maker -- to become a global player. In recent months, Geely Chairman Li Shufu has begun to assemble a diverse brand portfolio reminiscent of that controlled by Volkswagen AG, encompassing mass-market, premium and luxury passenger cars as well as commercial vehicles.

A Volvo AB spokesman said the company hasn't had any discussions with Geely and that it is too early to say what the consequences of the deal might be.

In May, Geely agreed to buy a 51% stake in British sports-car brand Lotus and a 49.9% stake in struggling Malaysian car maker Proton Holdings Bhd. that gave it a foothold in Southeast Asia.

Wednesday's acquisition caps an active year for Chinese auto companies globally. Chinese companies have invested over $34 billion in overseas automotive assets since 2008, according to Dealogic, not counting Geely's latest foray.

Most of those deals have been in the auto-parts segment, with state-run China National Chemical Corp.'s 2015 acquisition of Italian tire-maker Pirelli, valued at $7.86 billion, the largest so far in dollar terms. Earlier this year, Chinese parts-supplier Ningbo Joyson Electronic Corp. said it would buy bankrupt Japanese air-bag maker Takata for $1.59 billion.

The acquisition spree shows no sign of slowing despite Beijing's efforts to rein in overseas investment in other areas, such as entertainment, underscoring the strategic importance that the Chinese government attaches to the auto industry.

In particular, Beijing has ambitions to become a world leader in electric cars, an area in which Geely and other Chinese makers are investing heavily. Earlier this year, Volvo Car said all of its new models starting in 2019 would be either fully electric or hybrid.

The move for Volvo AB marks a renewed push by Geely into the commercial-vehicle sector. Last year, the Chinese company set up a domestic commercial-vehicle unit called Yuan Cheng, and in 2012 it bought the U.K.-based London Taxi Co.

China's commercial-vehicle sector grew 15% in the first 11 months of this year, compared with just 2% growth in the car market, prompting Geely and other makers to boost investments in their commercial brands.

The two Volvo brands have been under separate ownership since Volvo AB agreed to sell its car-manufacturing operations to Ford Motor Co. for $6.5 billion in 1999. In 2010, Geely paid Ford $1.8 billion for Volvo Car and has since plowed billions of dollars into the company, reshaping it to become a force in new technology such as electric cars, connected vehicles and self-driving cars.

Geely Auto was China's top-selling domestic car brand in the first 11 months of this year, with its sales growing 66% from a year earlier to nearly 1.1 million vehicles. With its success, it overtook large state-run rivals as well as private-sector competitors such as Great Wall Motor Co., which confirmed an interest in taking over Fiat Chrysler Automobiles NV's lucrative Jeep brand earlier this year.

Geely executives acknowledge that the quality and appeal of the company's cars has been helped by the infusion of technology and know-how provided by the Volvo acquisition. Buying a stake in Volvo AB now gives the Hangzhou-based manufacturer the potential to boost its Yuan Cheng operation through a similar tech-transfer process.

"Given our experience with Volvo Car Group, we recognize and value the proud Scandinavian history and culture, leading market positions, breakthrough technologies and environmental capabilities of AB Volvo," said Geely's Mr. Li.

In the U.S., Volvo AB sells commercial trucks under the Volvo and Mack brands. Volvo trucks are primarily used to haul regional or long-distance freight, while the Mack brand is dominant in the market for dump trucks, concrete mixers and trash haulers.

The company is the third-biggest heavy-duty truck seller in North America with 15.6% of the market, according to ACT Research. Volvo overtook Navistar International Corp. about five years ago when reliability concerns tarnished the latter's reputation. Daimler AG's Freightliner brand is No. 1, followed by Paccar with its Kenworth and Peterbilt trucks.

Volvo operates a separate U.S. construction machinery business that competes with Caterpillar Inc. and Japan's Komatsu Ltd. Its strongest equipment lines, drawing on Volvo's diesel engine know-how, include wheel loaders, excavators and off-road dump trucks.

Volvo also owns large stakes in truck and construction-equipment makers in China.

Christer Gardell, co-founder of Cevian, said in a statement Wednesday that during the 11 years the European-based firm was invested in Volvo AB, the truck maker became "a more competitive and valuable company through strengthened governance, improved efficiency and increased focus on its core business."

He also said that in Geely the Swedish company is gaining a shareholder "with significant expertise in strategically important areas for future value-creation."

Last month, Geely launched a new gl obal brand called Lynk & Co., which will make internet-connected cars targeting young urban customers, as well as acquiring U.S. flying-car startup Terrafugia for an undisclosed amount. In October, it committed over $750 million to develop Polestar, a new premium electric-car brand owned by Volvo.

--Max Bernhard in Barcelona and Bob Tita in Chicago contributed to this article.

Corrections & Amplifications Geely said it reached an agreement with Cevian Capital to acquire its stake in Volvo AB. An earlier version of this article incorrectly referred to the company as Cinven Capital. (Dec. 27, 2017)

Write to Trefor Moss at Trefor.Moss@wsj.com

 

(END) Dow Jones Newswires

December 28, 2017 02:47 ET (07:47 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.