Revised Volvo Pact Better Serves Investors, China’s Geely Says

Geely Automobile Holdings Ltd. Chief Executive Officer Gui Shengyue talked up the decision not to pursue a full merger with Volvo Cars, saying on an investor call Thursday that shareholders’ interests are better served if the two companies remain as standalone entities.

The difficulty of coming up with a fair valuation for Volvo acceptable to both investors in the Chinese carmaker and Volvo is one of the main reasons that led to the change of plan, Gui said. Geely investors wanted a valuation on the lower side and even if Chairman Li Shufu had agreed to that, Sweden’s government and Volvo’s union would have been against it because of the potential damage it could cause to Volvo’s brand, Gui said.

“Geely and Volvo are like brothers who are bound together for good and ill,” Gui said on the call. “Any damage to the Volvo brand caused by a merger won’t benefit Geely either.”

Hong Kong-listed Geely Auto and the iconic Swedish carmaker said Wednesday they are putting off earlier plans to merge, wagering they’ll be more agile apart. While the two car manufacturers will preserve their separate corporate structures, they’ll cooperate more closely on electrification, software and autonomous-driving technology, and new listings could be on the table.

Geely Auto’s parent Zhejiang Geely Holding Group Co. acquired Volvo from Ford Motor Co. for just $1.8 billion in 2010, when the U.S. carmaker was still recovering from the global financial crisis. Bloomberg Intelligence analysts estimated in December that Volvo could be valued in the range of $8.1 billion and $11.6 billion.

Different Cultures

Volvo Cars Chief Executive Officer Hakan Samuelsson said in an interview on Wednesday that the decision “is about maintaining top-line momentum.”

“A merger isn’t always positive,” Samuelsson said. “You risk losing momentum because there’s too much internal focus.”

Volvo Cars may instead seek a listing of its own. The duo will, however, move their powertrain activities into a separate company, which will enhance focus on development of electric vehicles, Samuelsson said.

Geely is also considering various options, including the possible spin off of an electric-vehicle-related business due to the rising prominence of electrification, Zhejiang Geely President An Conghui said on the investor call, without providing details.

Although views held by both Geely’s and Volvo’s senior management are roughly aligned, the two firms have different cultures, Gui added on Thursday, noting also that the world has changed a lot over the past year with the pandemic. The relationship between the East and West has altered too, he said.

Furthermore, dropping aspirations to combine removes any associated takeover costs and avoids diluting investors’ stake in Geely’s stock, Gui said. Geely jumped as much as 4.8% on Thursday, the biggest intraday increase in more than two weeks, before closing 2.7% higher.

“A merger does not necessarily involve shares,” said Gui, who added his project team had been working on the previous plan day and night for a year. The current design “realizes our goals” by creating more synergies that can lead to cost saving and generate additional profit.

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