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Volvo cars may go public in deal with Geely auto unit

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Volvo, wholly owned by Mr Li's Geely Group, will study the proposal to merge with publicly traded Geely Automobile Holdings.

[BEIJING] Volvo Cars owner Li Shufu is considering combining the Swedish carmaker with his Hong Kong-listed automobile unit to create a unified company with the scale to compete in a rapidly consolidating global market.

Volvo, wholly owned by Mr Li's Geely Group, will study the proposal to merge with publicly traded Geely Automobile Holdings, according to a statement Monday. The enlarged company would be listed in Stockholm as well as Hong Kong, where Geely Automobile trades now.

A transaction would unify the bulk of billionaire Li's growing stable of automotive brands. He bought Volvo Cars in 2010, and the company has since doubled sales while growing rapidly in China. Mr Li, who is also Daimler AG's largest shareholder, has championed consolidation as a way for automakers to pool resources for initiatives like electrification and automated driving.

Global dealmaking has picked up in the past year as Volkswagen and Ford Motor agreed to cooperate in a broad agreement, and Fiat Chrysler Automobiles is set to merge with France's PSA Group, owner of the Peugeot brand.

A joint listing with Geely Automobile would mark a creative way to list Volvo Cars, which delayed plans for an IPO in 2018, citing the impact of trade tensions on market conditions.

Potentially, the new company could be valued at around US$30 billion or more. Geely Automotive commands a current market value of about US$16 billion in Hong Kong, while Volvo targeted a range of US$16 billion to US$32 billion before it dropped its IPO plans in 2018, people familiar with the matter said at the time. Investors were only willing to pay between US$12 billion and US$18 billion, those people said.

Volvo was started in 1926 as a project within ball-bearing maker SKF AB, which wanted to show how useful its products could be in cars. The fledgling company was listed in Stockholm in 1935, and in the decades that followed, it expanded to become a sprawling conglomerate that also made made trucks and construction equipment, with stakes in pharmaceutical companies and breweries.

After a failed attempt at merging with France's Renault SA, the Volvo group sold the passenger car business to Ford Motor in 1999 to focus on making trucks and buses.

In the wake of the financial crisis, Geely took over Volvo Cars. paving the way for a resurgence of the brand, led by sales of its popular SUV models, which made up more than half of its sales last year. Deliveries in China have risen five times under Li's ownership. The company set up three assembly plants and an engine unit in China, while staffing increased to more than 8,000 from 188, according to the company.

Mr Li later bought a stake in the separate truck-making company, Volvo Group.

The car companies have already moved toward integration in response to industry challenges. In October, Volvo Cars announced that it would form a joint venture with Geely for the development of traditional combustion engines.

The new venture, which could be operational at the end of the year, will make engines for Volvo and Geely's brands, and could also supply engines to other manufacturers.

BLOOMBERG