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Analysis the Negotiation of Geely’s Acquiring Volvo

By:   •  September 20, 2018  •  Case Study  •  1,583 Words (7 Pages)  •  38 Views

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Analysis the negotiation of Geely’s acquiring Volvo

  1. Negotiation content
  1. Preparation

Attention was paid to Volvo from Geely since 2002. In 2008, Geely first submitted its bid proposal to Ford. On Oct.28, Ford announced Geely as Volvo’s preferred bidder.

  1. Basic objective
  1. Purchase price: $1.7 million
  2. Optimize financing structure plan
  3. Define equity including intellectual property rights and the separation of intellectual property rights and the separation of intellectual property rights of Volvo and Ford.
  1. Time and place

In December 2009, in Sweden, a framework agreement was reached. From January to March 2010, the specific acquisition plan was proposed. March 28-29, 2010, the final negotiations and signing.

  1. Agenda
  1. Object
  1. 100% equity
  2. Trademark rights, intellectual property rights, ownership, 10,963 patents, more than a dozen series of sustainable products and product platforms, two complete production companies with a capacity of 500,000, engine companies, and three Auto parts company.
  3. More than 3,800 R&D engineers, the entire talent system and innovative competence system, as well as 2,225 outlets in more than 100 countries, including social service agencies and 4S stores
  1. Trading conditions

The two sides agreed on the merger price, the other party's selling price did not exceed Geely's online. At the same time, the financing issue, the implementation of Volvo China's vehicle manufacturing project implementation base, and the smooth transfer of intellectual property rights can ensure a satisfactory solution before the official signing.

  1. Relationship between the two parties

Geely's main market covers China and has continued its low-end route. As the world's fourth largest auto company, Ford has established an international route and established a joint venture with Changan Automobile Co., Ltd., a subsidiary of China Changan Automobile Group, to establish Chang’an Ford Mazda Automobile Co., Ltd., and with 2003. Therefore, the Chinese market is a competitive relationship.

Now Geely wants to develop internationally, and at the same time, it has officially entered the high-end market. Undoubtedly acquiring a brand that already has a market base and appeal can speed up its process. At the same time, Ford's change in positioning and the pressure of debt made it necessary to sell some brands such as Volvo. This coincides with Geely's demand. In addition, Geely Chairman Li Shufu has been cherished for Volvo for a long time, and has made countless efforts to this end. Therefore, the establishment of the cooperation relationship between the two parties is in line with market trends.

  1. Successful acquisition

On March 28, 2010, Zhejiang Geely Holding Group and Ford Motor Company signed an equity purchase agreement. Geely acquired 100% of Volvo for US$1.8 billion. In addition to the equity acquisition, it also covers important terms between intellectual property, parts supply and R&D between Volvo, Geely and Ford. On August 2, 2010, Geely Chairman Li Shufu and Ford Chief Financial Officer Lewis Booth attended the delivery ceremony in London, England. At this point, Zhejiang Geely Holding Group has completed the acquisition of the entire equity of Volvo Corporation of Ford Motor Company.

  1. Introduction to Geely and Volvo
  1. Geely
  2. Volvo
  1. Analysis on Geely
  1. Geely’s profits in recent years
  2. Prospects for the Chinese auto market
  3. Funding sources of the acquisition
  1. Analysis on Ford and Volvo
  1. Ford
  1. Finance Status

Ford, the second-largest automaker in the US, released its financial report on January 29, 2009, showing that the company’s loss in the fourth quarter of last year reached 5.9 billion. In this way, Ford's full year loss in 2008 was $14.6 billion, which is the third consecutive year that Ford lost money. In contrast, Ford lost $2.8 billion in the fourth quarter of 2007 and lost $2.72 billion for the full year.

Due to the deepening of the financial crisis and economic recession, Ford's sales in the fourth quarter of last year fell by nearly 30%, including sales in the US market in December fell by 34.4%. Ford’s fourth-quarter film revenues also fell to $29.2 billion, compared to $45.5 billion in the same period in 2007.

  1. The reasons why Ford sold Volvo
  1. Volvo
  1. Volvo’s profit in recent years
  2. Volvo’s market share
  3. Volvo’s brand value
  1. Analysis on the advantages and disadvantages of both sides
  1. Geely
  2. Volvo
  1. Analysis on negotiation strategies

At the beginning of 2007, Mulally came to Ford as CEO from Boeing, and randomly proposed the “One Ford” strategy, and decided to launch a number of brands including Volvo. Li Shufu, who pays close attention to Volvo, immediately shot. In September 2007, Ford US headquarters received a registered letter. Li Shufu explained to Ford through a public relations company the idea of acquiring Volvo. But because Geely was not known at the time, it did not receive much attention from Ford. Li Shufu still did not give up, he tried to find opportunities to talk about Volvo with the CEO of Ford. Li Shufu has been working hard for a long time. Many people at Ford have remembered this Chinese entrepreneur.

  1. Radical strategy

Even while reaching a framework agreement with Geely Holdings, Ford did not shut down other potential buyers. The financing period Ford gave to Geely was till the first quarter of 2010. Geely Holdings was expected to pay the trading margin and issue the full amount of guarantee for the M&A transaction. Ford expected the final deal to reach an agreement in the first quarter of 2010 and complete the entire M&A transaction in the second quarter. This is Ford's aggressive strategy.

  1. Geely’s opportunity

After analyzing the two funds, Rothschild believes that Geely still has advantages:

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