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February 10, 2020 07:06 AM

Volvo, Geely plot merger to boost scale

Staff and wire reports
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    China's Geely Automobile and Volvo Cars said they are considering combining their businesses to accelerate financial and technological synergies between the two automakers.

    "A combination of the two companies would result in a strong global group," Li Shufu, chairman of Geely Holding Group, said in a news release on Monday.

    The deal would unify the bulk of Li’s growing stable of automotive brands and create a company worth some $30 billion, on par with Ford Motor.

    The new company’s combined annual shipments would surpass 2 million, based on data from 2019, rivaling shipments of BMW-branded cars.

    The combination of two companies would have brands including Volvo, Geely, Lynk & CO and Polestar. Geely's new energy brand Geometry will also be included.

    Zhejiang Geely Holding Group, Geely Automobile's parent group, acquired Volvo from Ford Motor in 2010.

    Geely Holding has a number of other investments including a 9.7 percent stake in Daimler acquired in 2018, a 49.9 percent stake in Proton in 2017 and majority stake in British sport car brand Lotus.

    The group is trying to consolidate assets as the industry adjusts to tougher emissions rules and the rise in demand electric cars.

    In October, Volvo said it would merge its engine development and manufacturing assets with those of Geely, creating a division to supply Lotus, the UK van maker LEVC, Lynk and Proton, and also potential rivals with next-generation combustion and hybrid engines.

    Geely Automobile sold 1.36 million cars in 2019 and aims to sell 1.4 million cars this year. Volvo sold just over 700,000 cars last year.

    The combined Geely Automobile-Volvo business would be listed in Stockholm as well as in Hong Kong, where Geely Automobile trades now.

    A joint listing with Geely Automobile would mark a creative way to list Volvo Cars, which delayed plans for an IPO in 2018, citing the impact of trade tensions on market appetite.

    Geely Automotive has a current market value of about $16 billion in Hong Kong, while Volvo targeted a range of $16 billion to $32 billion before it dropped its IPO plans, people familiar with the matter said at the time. Investors were only willing to pay between $12 billion and $18 billion, those people said.

    Volvo was started in 1926 as a project within ball-bearing maker SKF AB, which wanted to show how useful its products could be in cars. The fledgling company was listed in Stockholm in 1935 before expanding to become a sprawling conglomerate that also made trucks and construction equipment, with stakes in pharmaceutical companies and breweries.

    After a failed attempt at merging with France’s Renault, the Volvo group sold the passenger-car business to Ford in 1999 to focus on making trucks and buses. Geely took over the business from Ford in the wake of the financial crisis just over a decade later.

    Under Zhejiang Geely Holding, Volvo has seen a resurgence of the brand led by sales of the popular SUV models that made up more than half of its sales last year. Deliveries in China have risen fivefold under Li’s ownership, and the company set up three assembly plants and an engine unit in the country.

    Geely, which has been the top-selling Chinese car brand for three consecutive years, has sought to move upmarket through closer cooperation with Volvo.

    Reuters and Bloomberg contributed to this report

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