Models pose with the Volvo S60 sports sedan at the launch event for the car in southern Seoul in this March 9, 2011, photo.

Deal called ‘a world famous movie star marrying a peasant in China’

By Pedro Nueno and Gary Liu

Li Shufu, the founder of Chinese automotive maker Geely Group, had long wanted his company to buy Volvo, northern Europe’s biggest carmaker. Volvo would provide the innovation, branding and technology needed to propel China’s auto industry in general, and Geely in particular into international markets.

The financial crisis of 2008, and the big losses suffered by the U.S. auto industry, gave Li an opportunity that was equivalent, in his words, to “a world famous movie star marrying a peasant in China”.

But it wasn’t easy to get the deal sealed. Apart from getting anyone at Volvo ― or Geely ― to take the proposal seriously, the deal would be complex, more so because it would be international.

In 2007, undaunted by the challenges, Li sent a letter to the U.S. headquarters of Ford, Volvo’s ultimate owner, through the intermediary of a PR company, expressing interest in purchasing Volvo. The letter was ignored.

Then early in 2008, Li met a senior executive of Ford at the Detroit auto show. Ford was courteous but appeared unimpressed by Geely’s small size. After all, Ford had acquired Volvo for $6.5 billion.



Geely’s strategy

But Li was determined to press ahead. As part of his strategy, he set up an acquisition team. He invited Rothschild, an investment bank with experience in acquisitions, to help with the deal. Rothschild was assigned responsibility for the overall co-ordination and the valuation analysis of Volvo’s assets. The acquisition team also included: Freshfield, a law firm, and the accounting firm of Deloitte Touche Tohmatsu. Freeman Shen, the then vice president of Fiat China, who had experience in European and American companies, also joined Volvo’s China team.

Then, Geely made sure it kept the lines of communication open: during the Detroit auto show in January 2009, Li and Yu Liping, Rothschild’s Greater China president, visited Ford again.

This time, a very senior executive promised that Geely would be notified promptly if the U.S. carmaker decided to sell Volvo. There was a major step forward in April 2009, when Ford opened its Volvo database to Geely, providing valuable insight for moving ahead with the deal.

In its liaisons, Geely emphasized that it was not a big company, but it was based in China ― potentially the world’s largest auto market. Geely’s lure for Volvo was a promise to help it win in China.

In pursuing this deal, Li recognized the value of keeping local regulators informed. Geely submitted a report to the National Development and Reform Commission, which oversees economic and social policymaking in China. It restated the importance of the Volvo deal for China’s automotive industry and its confidence that it would be able to turn loss-making Volvo into a profitable company. In China, perhaps more than anywhere else, it is vital to persuade regulators from early on and keep them up to date.

Lee also addressed, head on, the issues of operations and culture. Geely reassured Ford and Volvo that production would stay in Sweden and Belgium; it had to promise to respect Volvo’s culture of safety and efficiency; it had to reassure that it could, as a maker of cheap cars, take on a premium brand.

Another key strategy was keeping an eye on intellectual property (IP). Although the acquisition agreement between Geely and Volvo was more or less ready at the end of 2009, negotiations on IP rights lasted almost until the deal was signed in late July 2010.

The marathon negotiation came to an end on Aug. 2, 2010, when Ford and Geely signed the final agreement for the Volvo acquisition. Geely acquired all shares of Volvo for $1.5 billion.

Lessons learned

A strong negotiating team was important to this deal ― this was apparent when untangling the IP rights between Ford, Volvo and Geely for instance. In addition, the team’s experience helped convince Volvo and regulators in China and other countries that the deal was good for the global car industry overall.

Taking a long view of an acquisition helps. Geely wanted to acquire Volvo long before Ford decided to sell, so it was ready in terms of planning and preparation when the right moment ― the financial crisis of 2008 ― came along.

Geely showed Volvo how it could gain the carmaker a foothold in China, while also respecting Volvo’s culture. By informing the Chinese government of its plans early and swiftly, Geely established itself as the forerunner in the regulators’ eyes.