Volvo's acquisition of Geely. A merger and acquisition study case for presentation in M&A Class of Universitas Tarumanegara Post Graduates, Jakarta, Indonesia.

1. Volvo and Geely
1

2. Chinese Automobile Industry
2
• Cental Goverment, Local
Goverment, Automaker
Three Main Player in the
Industry
• Production of 13.8 mill units 2009China exceeded Japan as leading car
producer in 2009
• Joint Venture Foreign Firm and
Chinese FirmsCharacterizing
• Less than 5 out of 1000 people own
a car
Growth potential
• Growth peak in 2015Projected sales growth at 1mill
vehicles annually
• Shanghai, Tianjin, Gaungzhou3 Main car manufacturing cities

3. Li Shi Fu & Geely Automotive
3
• Born 1963 in zhejiang province
• Founder of the Geely Holding Group
• His first business was photo services for tourist at
tourist site, for which he used camera and bicycle
purchase with RMB 100 school graduation gift.
• In 1997, he entered the automobile manufacturing
industry and has been devoted to the development
of China's auto industry over the past two decades.
“Nothing is possible,
one only needed to
dream big.”
1980 1990 2000 2005 2010
1986
Geely founded on
Nov. 6 as a
refrigerator
maker
1998
The Geely Hoaqing SRV
rolled off the production
line
2001
1st private company
authorized to produce in
china
2003
Exported its 1st car
2005
Listed in HK Stock Market
2007
Joint venture with Manganese Bronze
holding, makers of london taxi.
Geely own 52% stake in shanghai LTI
automobile Ltd.
2008
Participate the north USA auto show.
Aquisition of australian drivetrain system

4. • Volvo Founded in Gothenburg, Sweden, in 1927
• Over next 70 years volvo cars became known for quality, safety and somewhat
quickly swedish style
• 1990s volvo had added concern for environment as a core brand value
• “It might be because the car is a little square and sluggish just like the swedes
themselves “ (the Volvo Way)
• “Cars are driven by people. The guiding principle behind everything we make
at Volvo, therefore, is – and must remain – safety” (Assar Gabrielsson and
Gustaf Larson, founders of Volvo)
4
THE FORD ERA
• Ford Purchase Volvo Car from the Volvo Group
in 1999 for $ 6.45 Billion. Volvo Truck and
Commercial Vehicles were not part of the deal.
• Volvo Car was part of formation Premier Auto
Group (PAG), a division focuses High End
Product
• Volvo Suffered losses under Ford in 2006 and
2008-2009 recession
Volvo Background

5. Volvo Performance
Performance 2006 2007 2008 2009 2010
Revenue (SEK Million) 122.076 121.620 95.120 95.700 113.100
EBIT (SEK Million) (296) (1.117) (5.185) (5.185) 2.340
Sales (Number of Cars) 427.747 458.323 334.808 334.808 373.525
Employees 25.553 24.384 19.650 19.650 19.494
Fleet avg CO2 g/km 193 190 173 173 157
5
300,000
330,000
360,000
390,000
420,000
450,000
480,000
2006 2007 2008 2009 2010
SALES
VOLVO GLOBAL SALES VOLUME

6. The Deal
2002
(Mr. Li
interest in
Volvo)
2007
(Rothschild
Invesment
Bank
approached
Mr. Li about a
acquisition)
2008-2009
(Financial
Crisis, Ford
entertained
Mr. Li’s
advances)
April 2009
(Four different
Automobile
Companies
toured to
Europe)
6
Dong Feng
Chang’an
Chery
Geely Holding

7. The Deal
Dec 2009
The late
spring and
summer of
2010
August 1,
2010
7
$1,8 billion:
$1,6 billion in
cash and $200
million note
Further
Negotiations
$1,5 billion:
$1,3 billion in
cash and $200
million note
DOWNWARD
Working Capital
& Labor
and
Pension Fund
?
1999,
Ford bought
Volvo
6,45 Billion
=
3 X more
than the
current bid
price made
by Geely

8. The Effect of Acquisition For Geely & Ford
8
Geely stock rose 5.9
percent Monday in
Hong Kong
Ford shares gained
39 cents, or 3
percent, to close at
$13.16 in New York.
Geely’s
Acquisition
of Volvo

9. Geely Holdings & Geely Auto

10. Alternatives & Solutions
10
Others
10%
North
America
15%
Far East
10%
Europe
65%
Volvo Sales 2010
1
• Expand in North America
2
• Expand in China
3
• Expand in the Far East
VOLVO
• Back to Luxury
segment
GEELY
• Technology
transfer,
increase quality

11. The New Strategy – China Expansion
Global sales to
800.000
by 2020
Create Volvo Cars China
Set up DCC*
Build a plant in Chengdu
Build a plant in Daqing
*DCC: Dialogue and Cooperation Commitee
11
• The expansion in China will not affect operations and employment in Europe.
• Shanghai will serve as Volvo Car China headquarters and centre for product development, design and
sourcing. To support Volvo Corporation R&D in Sweden regarding the development of electric vehicles and
hybrids.
• Focus on increasing sales in China and expanding dealer shops.
• Volvo Car Corporation will optimize its sourcing network in China for the global market.
• Volvo Car China will start to employ new staff to work with product development for the Chinese market
and support local production and purchasing.
“Geely is Geely and Volvo is Volvo.”
-Li Shu Fu

12. What happens next?
12
Volvo XC90 (2015) for US Market
Volvo global sales 2014: 466.000, rose
9% because of a significant increase in
China
Operating profit in 2014 rose 17.5%
In Feb. ‘15 announce they will invest $
500 miollion in its first US assembly
plant
'Hi, we're Volvo. Remember us?‘
With the revamped XC90 getting ready to hit U.S.
dealerships this summer, the Swedish automaker is using
guerrilla tactics to reintroduce itself to the U.S.
http://fortune.com/2015/02/20/volvo-xc90-2/
http://www.forbes.com/sites/russellflannery/2014/10/27/geely-in-swedish/2/

13. Lessons Learned
1. Never underestimate the power of Chinese Company.
2. Image in luxury brand is everything.
3. China is a very big market with a fast growing luxury
segment.
4. In organizing two distinct organizational culture, the
cautious way is the best. (Volvo-Geely, Renault-Nissan).
5. Acquisition is one of the best way to capture technology
prowess.
13

14. Thank You
Once this tiger returns to the mountains
and carves out its own territory, it will
enjoy the market share that it is due.”
-Li Shu Fu
http://www.quotetimes.com/people/110091/li-shufu?feedid=726354
“
14

15. Geely Automobile In Figures
Year Started 1998
Total Workforce 15.248 (10% R&D Staff)
Customer Base Diversified & Fragmented
Manufacturing Facilities 8 Car plants, 2 Engines plans and 2 Gearbox plants
Product 7 major sedan models under 4 platforms
Number of Dealers 800
Brand Free Cruiser, Geely Kingkong, Vision, Geely Panda
Sales volume 2010 415.000 Vehicles
Five Key Brand Group Geely, Gleagle, Emgrand, Englon
Distributor Network 300 dealers in 45 countries
15

16. Product Geely
16

17. Changing Chinese Purchasing Priorities
Reason to Buy (% response) 2000 2010 Change
Low Purhcase Price 28% 12% -16%
Good Vehicle Quality 5% 9% 4%
Good Vehicle Styling 3% 19% 16%
Roominess/Interior Space 2% 10% 8%
Average Transaction Price (RMB)
Premium Midsize 341.534 209.802 -39%
Midsize 175.793 120.234 -32%
Entry Midsize 134.964 90.737 -33%
Compact 63.980 42.988 -33%
Average Exchange Rate (RMB/USD) 8,28 6,77
Average Transaction Price (USD)
Premium Midsize $ 41.248 $ 30.990 -25%
Midsize $ 21.231 $ 17.760 -16%
Entry Midsize $ 16.300 $ 13.403 -18%
Compact $ 7.727 $ 6.350 -18% 17

18. Volvo Innovations
• Liminated glass (1944)
• The 3-Point Safety belt (1959)
• The rear-facing child seat (1964)
• The side impact Protection system (SIPS, 1991)
• Side Safety Airbags (1995)
• Head Protecting airbags(1998)
• BLIS (2004)
18

19. Model range - Production
Volvo S40
2010: 28.666
Assembly: Ghent
Volvo S60
2010: 27.579
Assembly: Ghent
Volvo S80
2010: 28.949
Assembly: Gothenburg
Volvo V50
2010: 54.302
Assembly: Ghent
Volvo V70
2010: 48.585
Assembly: Gothenburg
Volvo C70
2010: 9.532
Assembly: Uddevalla
Volvo C30
2010: 35.248
Assembly: Ghent
Volvo XC90
2010: 36.711
Assembly: Gothenburg
Volvo XC70
2010: 21.156
Assembly: Gothenburg
Volvo XC60
2010: 83.670
Assembly: Ghent
Incl. assembly in China (S40/S80L), Thailand (S80, XC90) and Maleisia (S40, S80,V50,XC60,XC90). Total VCC-production 2010: 387.802 cars
Volvo V60
2010: 13.404
Assembly: Gothenburg

20. Competitive Strategy

21. Volvo Acquisition
• Biggest overseas acquisition by a Chinese automaker
• 100% ownership of Volvo and related assets, including agreements on
intellectual property rights, supply and R&D arrangements
• Planned production 300 000 Volvo’s annually
• Double original Volvo production capacity
• Mainstream European brand vs domestic economy car brand
• Building a successful partnership between Volvo and Geely will
require a solid plan for post-acquisition integration

22. Geely Competitors & Suppliers
22
Main:
•China Motor Corporation
• Dragon Hill Wuling Automobile
Holdings Limited
• Brilliance China Automotive
Holdings Limited
• Zhejiang Geely Automobile
Parts & Components Company
Limited
• Shanghai Maple Engine
Company Limited
• IAC Group (Interiors)
• Autoliv Inc (Airbags)
Competitors Suppliers

23. 23

24. Chinese Initial Quality Survey
24

25. 25