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Geely, up on Volvo bidder tag, faces uphill task

(China Daily/Agencies)
Updated: 2009-10-30 08:10

Geely Automobile, whose shares soared yesterday after being named the "preferred bidder" for Ford's Volvo unit, could win a valuable brand if the bid succeeds, but could take years to see profits from the loss-making Swedish carmaker.

Home-grown Geely, which means "lucky" in Chinese, is hungry for modern and innovative technologies that can upgrade its cars to tap the growing affluent auto market in China, the biggest in the world.

"I think the market is still divided on the Geely deal," said Chen Qiaoning, an analyst with ABN AMRO TEDA Fund Management.

"If its parent indeed gets Volvo and the deal serves it well, the listed firm would benefit tremendously. But if they are unable to handle Volvo... the listed company will suffer."

Related readings:  Geely, Ford talks for Volvo unit may 'fall apart'  No progress made in Volvo takeover, Ford's CEO  Goldman fund to invest $250M in Geely: WSJ   Geely capital raising move may fund Volvo buyout bid

Market watchers have been hopeful that Geely, which used to make China's cheapest cars, would reap benefits in better brand recognition and new technology if its parent, Zhejiang Geely Holding, can buy Volvo and turn the company around.

Investors have bid up Geely's stock more than four-fold this year, sending it to a record high yesterday, even as the broader market slipped.

Ford Motor named Zhejiang Geely Holding Group as a preferred bidder for its loss-making Swedish unit Volvo Car Corp late on Wednesday, bringing the long-running sale process closer to a conclusion.

"That for sure will shorten the technology development time for Geely," said Vivien Chan, auto analyst with Sinopac Securities Corp.

Geely shares rose as much as 4.5 percent to HK$3, the highest since the company was listed in 2004 after buying a shell company. The stock ended yesterday up 2.1 percent.

Zhejiang Geely said its bid is supported by Chinese banks and it will now embark on further detailed discussions with Ford.

"We have made a great effort and are well prepared. But whether the deal will go through depends entirely on the negotiations," Yuan Xiaolin, a spokesman for Zhejiang Geely told Reuters.

Media reports suggested the price tag for Volvo could be closer to $2 billion than the $6.45 billion Ford paid for the Swedish carmaker in 1999.