Commerce Ministry Supports Geely buy Volvo

Yao Jian, the spokesman for the Ministry of Commerce told the media on December 17 that the Ministry of Commerce would support Geely Automobile's acquisition of Volvo. The attitude of China's commerce ministry towards Tengzhong Heavy Industrial Machinery's acquisition bid for Hummer was quite ambiguous. Compared with the earlier attitude, Yao Jian's announcement drew a lot of attention.

At present Geely's acquisition process has faced with a critical moment, according to the Nanfang Daily. As a domestic automaker, Geely is able to purchase an international auto brand-Volvo, with the help of all kinds of positive conditions. The attitudes of the Ministry of Commerce towards two acquisition bids are different. What can we learn from the difference?

The Ministry of Commerce announced that Geely's acquisition project would promote technological development. According to media reports, Yao Jian said that China's capital and foreign reserves would be utilized effectively along with Geely's acquisition of Volvo. China would have more experience about international mergers and acquisitions and obtain other benefits related to the technology and brand. In particular, China's auto sales enjoyed a rapid development in 2009 and advanced technologies and management tools are necessary. Acquisition is a good way, which will be conducive to the modernization process of enterprises. The further growth of overseas development is likely to become a trend. "At present, China has more than 200 overseas institutions. If necessary, the Ministry of Commerce will provide overseas legal and consulting services for Geely to support its acquisition," Mr. Yao Jian said.

The Ministry of Commerce has demonstrated its support for Geely clearly, which is in accordance with Geely's earlier announcement. According to sources, Geely's acquisition plan consists of several parts. First of all, Geely would become a preferred bidder and the target is 100% shares of Volvo. Volvo will retain its ownership of key technologies and intellectual properties as well as the rights of using the intellectual properties that belongs to Ford when Volvo designs its business plan. Geely will obtain the ownership of key technologies and intellectual properties via Volvo and have the right to implement a large number of the intellectual properties, including safety, environmental protection and other aspects.

At present the negotiation between Geely and Volvo has arrived at a critical point. Earlier this month, Yuan Xiaolin, who is in charge of Geely's bid for Volvo, told the Nanfang Daily that Geely has been keeping in touch with relevant government departments during the acquisition process. Geely would ask for government's approval for certain projects, which is in accordance with relevant laws and regulation rules." As to the overseas development strategy, Geely has received State support," Yuan Xiaolin said.

Can foreign things serve China? It is a key issue. Through the attitude of the Ministry of Commerce, Geely would have access to the brand, advanced technology and management experience. Based on the attitude of the Ministry of Commerce, that's the main reason why Geely received support from the authorities. Zhang Zhiyong, an auto commentator, said that the acquisition of Volvo would play a significant role in promoting Geely's brand value, technology and international market experience, which meets the direction of China's independent brand's development. And that's why the authorities offered support. In contrast, Tengzhong's bid for Hummer was of little commercial significance. The features of Hummer are not in line with China's industrial development policy and the development of the automotive industry.

Zhang Zhiyong also believed that Geely's acquisition for Volvo would be the first case in the world that a Chinese automaker purchased an influential international brand. China's enterprises will have access to the world's recognition, which is very significant. In this sense, the Ministry of Commerce may confirm Geely's acquisition based on those concerns.

However, Ma Guangyuan, a M&A expert, believed that the Ministry of Commerce is an official department which is in charge of overseeing and approving business deals and the declaration of support may be unfair. Ma said that "the Ministry of Commerce should stick to its responsibilities of overseeing and approving cases". However, Ma Guangyuan also thought highly of Geely's acquisition. In his opinion, both of Geely and Volvo belong to the automotive industry and the practical procedures are relatively simple. “There is some difference between Tengzhong's acquisition and Geely's deal," Ma said. (Translator: Qinghua/Hanxin)

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