Geely buys into Swedish truck maker AB Volvo to reinforce globalisation drive

PUBLISHED : Wednesday, 27 December, 2017, 8:48pm
UPDATED : Wednesday, 27 December, 2017, 10:40pm

Zhejiang Geely Holding Group, China’s leading auto manufacturer, has secured an 8.2 per cent stake in Swedish truck maker AB Volvo after reaching an agreement with Europe’s largest activist fund manager Cevian Capital.

The Chinese auto maker that bought Volvo Cars seven years ago, will become the largest shareholder of the truck maker after the transaction is completed.

The investment in AB Volvo is the latest step by the Chinese automotive group, founded and controlled by billionaire Li Shufu, to expand its footprint around the world.

“We recognise and value the proud Scandinavian history and culture, leading market positions, breakthrough technologies and environmental capabilities of AB Volvo,” Li, chairman of Geely Holding, said in a statement. “We will support the board of directors and the management of AB Volvo in their continued execution of the current strategy.”

In June, Geely Holding bought 49.9 per cent of Malaysian carmaker Proton and 51 per cent of iconic British sports car marque Lotus Cars.

Shares of its Hong Kong-listed subsidiary Geely Automobile Holdings gained 0.6 per cent to HK$25.8 (US$3.30) on Wednesday, jumping 254 per cent from the close of last year.

Volvo Cars became independent since AB Volvo sold it to the Ford Motor Company in 1999.

Geely Holding bought Volvo Cars from Ford in 2010 and has been leveraging its ownership of the luxury carmaker to enforce its go-global strategy by marrying European styling and technology to Chinese production costs and manufacturing might.

Under the agreement, Cevian has sold all of its 88.47 million A shares and 78.77 million B shares in AB Volvo to Nomura International and Barclays Capital Securities.

Geely will take over all the shares from Nomura and Barclays following necessary regulatory approvals.

The Chinese company will also become the second-largest owner of AB Volvo by voting rights after investment firm Industrivarden.

Volvo’s owner Geely aims to sell 500,000 units of its new Lynk brand vehicles by 2019

“The agreement will not only give AB Volvo a new large and committed shareholder, but one with significant expertise in strategically important areas for future value creation,” said Christer Gardell, co-founder of Cevian.

The value of the transaction was not revealed.

AB Volvo also makes buses, construction equipment, diesel engines and industrial engines.

“The deal helps Geely move into truck and engineering territories and has a positive impact on its globalisation drive,” said Yale Zhang, the managing director of consultancy Automotive Foresight. “It is edging closer to becoming a global auto maker with a complete line of vehicle businesses.”

Lynk & Co, a joint venture between Volvo Cars and its parent group Geely, started selling its first model last month, joining the competition in the mainland’s mainstream car segment which is dominated by foreign brands including Volkswagen, General Motors, Ford and Toyota.

Geely has also formed an electric-vehicle joint venture with Volvo Cars, pledging an investment of 5 billion yuan (US$758 million) to support Polestar-branded high-performance electric cars.

The mainland’s finance ministry announced on Wednesday that a tax rebate on purchases of new-energy vehicles will be extended until the end of 2020, rather than the year-end in 2017, a move to further encourage development and manufacturing of electric and plug-in hybrids.