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Geely buys Volvo

Two days before Christmas, Geely announced it had settled commercial terms with Ford on the acquisition of Volvo cars. It is only now, however, that the two sides actually have a deal. The Hangzhou-based manufacturer will not get its hands on the assets until the third quarter, two years after registering interest.

The leisurely time scale says a lot about China as an acquirer. The price (representing an enterprise value about 70 per cent of book value) and deal structure (including $200m of vendor finance) show that Ford was pretty desperate to offload the loss-making Swedish automaker. But Geely faced two big hurdles. The first was intellectual property. Chinese start-ups, not just in cars, have flourished by pursuing a simple but effective strategy: take designs and parts from established global manufacturers, then reverse-engineer them. Disentangling technologies owned by Ford from those owned by Volvo was hard enough; the seller needed assurances from the buyer that it would then respect them.

Source: Financial Times

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