STOCKHOLM - Zhejiang Geely Holding Group signed a binding deal yesterday to buy Ford Motor Co.'s Volvo Cars unit for $1.8 billion, representing a coup for the independent Chinese automaker in its aim to expand in Europe.
The purchase gives Geely a European luxury brand with a reputation for safety and quality at a time when China, which surpassed the United States last year as the world's largest car market, is eager to improve its competitiveness by acquiring foreign automotive brands that might help it improve its technology and expand into overseas markets.
The price, which includes a $200-million note with the remainder to be paid out in cash, is far less than the $6.45 billion Ford paid for the Swedish automaker in 1999. Ford has been trying to sell Volvo since late 2008 to focus its resources on managing its core Ford, Lincoln and Mercury brands.
"We think it's a fair price for a good business, and yes, we're happy with the deal we've achieved with Geely," said Ford's chief financial officer, Lewis Booth, at a news conference at Volvo Cars headquarters in Göteborg, on Sweden's west coast. He said his company believes that under Geely, "Volvo can continue to build its business and return to profitability."
The agreement was signed by Booth and Geely's chairman, Li Shufu, and witnessed by Li Yizhong, the Chinese minister of industry and information technology, as well Maud Olofsson, Swedish minister for enterprise and energy.
In a statement, Geely said it has secured all the financing necessary to complete the deal, as well as "significant working capital facilities to fund Volvo Cars' ongoing business." The sale is expected to be completed in the third quarter, subject to regulatory approvals.
The deal also covers further agreements on intellectual property rights, supply, and research and development arrangements between Volvo Cars, Geely and Ford. The U.S. automaker has committed to provide engineering support, information technology, access to tooling for common parts and certain other services for a transition period.
Li described the deal as "a milestone" for both Geely and Volvo, adding that his group will make a Volvo chief executive public "in due course." Geely said it aims to keep Volvo's manufacturing facilities in Sweden and Belgium, but that it also will explore manufacturing opportunities in China. Volvo Cars will remain separate from Geely's other operations, with its own Sweden-based management team and a new board of directors, the company said.
"China, the largest car market in the world, will become Volvo's second home market," Li said.