Geely and Volvo Cars plan merger and listing

Volvo Cars and Geely Automobile are planning to merge in a move that would bring the Swedish company back to public markets and create China's first global carmaker.

The proposal, announced on Monday, comes 18 months after Volvo Cars abandoned an attempt to list independently, against a backdrop of growing consolidation in the car industry.

Li Shufu, chairman of both Geely and Volvo Cars, has spent more than a decade assembling a portfolio of brands outside China to complement his domestic car manufacturing business. They include Britain’s Lotus and black taxi maker LEVC as well as Malaysia’s Proton. Geely called off talks to invest in luxury carmaker Aston Martin only weeks ago.

Since acquiring Volvo Cars from Ford in 2010, Mr Li has mainly adopted an arms-length approach.

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Components and technology

But after investing $8 billion in reviving the Swedish brand via a complete model renewal, Mr Li has sought more integration between Volvo Cars and his Chinese brand through common components and technology needed for autonomous driving and electrification.

Volvo Cars said on Monday that any deal would “accelerate financial and technological synergies” between the companies.

“A combination of the two companies would result in a strong global group,” Mr Li said on Monday.

The combined company would be listed in Hong Kong and could seek a secondary listing in Stockholm, Volvo said. Geely is already listed in Hong Kong.

Geely and Volvo Cars are creating a joint working group to be led by Hakan Samuelsson, the 68 year old who has led the Swedish group since 2012, to draft a proposal for their boards to try to form a combined company by the end of the year.

Volvo Cars underlined that any combination would keep “the distinct identity” of the Volvo, Geely, electric Polestar and start-up Lynk & Co brands.

Consolidated empire

Robin Zhu, an analyst at Bernstein in Hong Kong, said the move would make Geely a “global business”, doubling the company’s operating profit and tripling its annual revenues.

He said: “The deal feels like – after years of dealmaking – a first move by chairman Li Shufu to consolidate his sprawling automotive empire, and to pay off some of the debt that had built up. Uniting Geely, Volvo, and Lynk under the same listed entity would mark the emergence of China’s first, and possibly only, global carmaker.”

As recently as last month, Mr Samuelsson said an IPO of Volvo Cars remained “an option for our owner”, meaning Mr Li, adding that “nothing has changed” in the two years since the company pulled the float.

The value given to Volvo Cars, which sought a valuation of up to $30 billion during its IPO preparation two years ago, will be key to the deal, he added.

Mr Li has kept the industry guessing in recent years with a series of extra purchases including stakes in truckmaker Volvo Group, which has been separate since 1999, and Mercedes owner Daimler. This stakebuilding raised concerns about his intentions in Sweden, where Mr Li's rescue of Volvo Cars had been widely hailed. – Copyright The Financial Times Limited 2020