Ford has reached a tentative agreement to sell its Volvo cars unit to Geely, the ambitious Chinese automaker, with a deal expected to be finalised early next year, the two companies said on Wednesday. Ford said in a statement that “all substantive commercial terms” had been settled, though financing and government approvals have yet to be finalised. Neither company would comment on the price, though sources close to the deal say it is in the region of $1.8bn-$2bn.
Will Volvo's recent takeover by Geely (Mandarin for lucky) prove to be lucky for both companies? The Hangzhou-based company paid Ford $1.8 billion ($1.6 billion for a 100% equity stake and $200 million for a credit note), and raised $900 million to keep Volvo running, which took the total tab to $2.7 million. To finance this deal, Geely secured $2.1 billion of loans from Bank of China, China Construction Bank, Export-Import Bank of China, Geely Automobile Holdings (the group's listed arm), and the government of Gothenburg, where Volvo is headquartered. In return, Geely has promised to return Volvo, which made a $934 million loss last year, to profits in two years' time. Is that possible?