Two days before Christmas, Geely announced it had settled commercial terms with Ford on the acquisition of Volvo cars. It is only now, however, that the two sides actually have a deal. The Hangzhou-based manufacturer will not get its hands on the assets until the third quarter, two years after registering interest.
The leisurely time scale says a lot about China as an acquirer. The price (representing an enterprise value about 70 per cent of book value) and deal structure (including $200m of vendor finance) show that Ford was pretty desperate to offload the loss-making Swedish automaker. But Geely faced two big hurdles. The first was intellectual property. Chinese start-ups, not just in cars, have flourished by pursuing a simple but effective strategy: take designs and parts from established global manufacturers, then reverse-engineer them. Disentangling technologies owned by Ford from those owned by Volvo was hard enough; the seller needed assurances from the buyer that it would then respect them.
The second hurdle was Geely's evolving status. As a private manufacturer, founded in 1986, the company has grown up outside the direct control of China's economic planners. But the country's biggest auto deal to date is not a strictly private transaction. Geely is putting in about half of the $1.6bn of equity; the rest is coming from provincial governments that will build plants to assemble Volvos for the local market. On top of that, Geely is getting about $900m in working capital to tide it over Sweden's traditional summer production shutdown, courtesy of a consortium led by state-owned banks. Geely was not on the list of eight state-appointed industry consolidators last year. Now, in effect, it is. Its deal to buy Volvo is not an open-and-shut case of guo jin min tui – the state advances while the private sector retreats. But the boundaries are increasingly blurred.