Geely buys Volvo for $1.8bn

GS Capital Partners portfolio company Geely Automobile Holding has reached an agreement to buy Volvo Car Corporation from the Ford Motor Company for $1.8 billion.

The purchase of the loss-making but iconic Swedish brand by China’s first independent car maker has caused waves in the automobile industry, prompting more than one media outlet to comment that it is representative of the shift in capital and industrial might from West to East.

GS Capital Partners, the private equity arm of the US bank invested HK$2.6 billion ($337 million; €227 million) into the Hong Kong Stock Exchange-listed Chinese automaker in the form of convertible bonds and warrants in September last year for a 15.1% stake in the company.

At the time, a statement from the firm said around HK$1.9 billion in proceeds from the convertible bonds would be used to finance acquisitions and corporate expenditures, with the remaining HK$689 million to be used for general working purposes.

Geely raised the remaining capital for the Volvo acquisition from banks and investors including the Bank of China Limited, China Construction Bank, the Export-Import Bank of China and the Goldman Sachs Group, according to a report in China Daily.

The sale, made via a holding company Zhejiang Geely Holding Group, is expected to close in the third quarter of 2010.

Ford paid $6.45 billion for the Scandinavian brand’s car division in 1999. The Swedish automaker, best known for its stable of safe, boxy cars, was put up for sale in 2008 after Ford suffered heavy losses that year. Volvo too has been operating at a loss.

Headquartered in Hangzhou, Geely is China’s first independent automaker. The company’s primary export markets include the Middle East, Eastern Europe, Africa, Southeast Asia and Central and South America. For the six months ended 30 June, it booked revenues of approximately RMB5.9 billion ($864 million; €585 million), nearly 88 times as much as it made in the same period last year.

Following the acquisition Ford will, for a period, continue to provide several key services and products to Volvo to ensure a smooth separation process, the company said in a statement.

Geely released a separate statement saying that it intended to preserve Volvo’s existing manufacturing facilities in Sweden and Belgium while exploring opportunities to manufacture vehicles in China for the local market.