Geely Automobile's Shares Surge As It Scraps Full Merger To Pursue Watered-down Combination With Volvo Cars

Both parties have now agreed to an equity merger of their powertrain operations and will jointly develop electric vehicle platforms It comes a year after the China's Geely held talks with the Swedish luxury automaker for 'possible restructuring' to realise synergies in cost structure and new technology development
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Geely Automobile's Shares Surge As It Scraps Full Merger To Pursue Watered-down Combination With Volvo Cars

Geely Automobile jumped by the most in nearly three weeks in Hong Kong after the Chinese automaker called off a merger plan with Volvo Cars, to focus instead on collaboration in some parts of its manufacturing unit.

Its shares climbed as much as 4.8 per cent to HK$27.15 before trading at HK$26.65 at 2.30pm local time. They had declined in the previous six trading days to the lowest level since December 30.

Both parties have now agreed to an equity merger of their powertrain operations, according to an exchange filing late on Wednesday. They will also conduct joint development of electric vehicle platforms, technology sharing and joint procurement, it added.

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"The deeper collaboration will enable existing stakeholders and potential new investors in Volvo Cars and Geely Auto to value their respective standalone strategies, performance, financial exposure and returns," it said. "We will also have the opportunity to explore capital market options."

The switch to a watered-down approach came a year after the Zhejiang province-based Geely held talks with the Swedish luxury automaker fo r "possible restructuring" to realise synergies in cost structure and new technology development while preserving their individual brands including Lynk & Co and Polestar.

Zhejiang Geely Holding Group, controlled by Chinese tycoon Li Shufu, owns 97.8 per cent of Volvo Cars and 40.9 per cent of Geely Auto. The group also owns 9.7 per cent of German carmaker Daimler.

Li Shufu, founder and chairman of Zhejiang Geely Holding Group. Photo: Reuters

Li Shufu, founder and chairman of Zhejiang Geely Holding Group. Photo: Reuters

"Overall we see the solution as below our expectation as it is more of a cooperation than a merger," said Daiwa Capital Markets analyst Kevin Lau in a note on Thursday. "We had expected the acquisition of the entire Volvo Car business leading to more future synergies in terms of operational efficiency."

The post-merger powertrain company will start operation this year and will offer products and services not only to Volvo Cars and Geely Automobile, but also other automobile firms.

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Besides powertrains, the carmakers' products also include next-generation dual-motor systems for hybrid vehicles that can be powered both by internal combustion engines and electric motors. Both parties plan to jointly develop autonomous driving solutions, it added.

Geely Auto formed three partnerships last month on electric vehicles development. They include plans with Chinese search engine giant Baidu on smart electric vehicles and with Tencent Holdings on digitalisation, intelligent cockpits, autonomous drive, and low carbon development.

There is also a 50-50 venture with Taiwan's Foxconn Technology Group to provide contract manufacturing and consulting services on electric vehicle technologies to auto makers.

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