Shares in Geely Automobile have risen some 40 percent in the past month partly on hopes the Chinese carmaker's parent company will buy Volvo. Ford has named Geely as preferred bidder for the Swedish marque. But on this occasion it could be better to travel hopefully than to arrive.

Buying Volvo would be a huge mouthful for Geely. If it goes ahead, Geely and founder Li Shufu will have to write Ford a cheque for $2 billion. But that's just for starters. Volvo lost $1.5 billion last year. Assuming it continued at the same rate during Geely's first year of ownership, the Chinese would pretty quickly be in for $3.5 billion.

By way of comparison, that is almost 20 percent more than Geely Automotive's enterprise value of just $3 billion. And it doesn't include any further investment Geely might make. The long-term plans being talked about in the media suggest the total could hit about $10 billion. Achieving an acceptable return on that would require a dramatic turnaround in Volvo's fortunes.

Staunching the losses won't be easy in the short term. The deal offers few quick fixes. Geely will find it hard to reduce Volvo's costs because it doesn't have any Western operations of its own to integrate. It will depend for the most part upon the supply arrangements that Volvo already has with Ford and others, and these are unlikely to go down in price because of the takeover. Geely has already said that if its offer goes through it will retain Volvo's factories, research centre, trade union agreements and sales network.

Whether the deal works or not depends upon whether Geely can successfully implement what seems to be its longer-term plan. This is to turn Volvo around and transform its own fortunes by taking the Swedish marque into China as a locally-owned brand.

Geely Automotive is currently the smallest of the big Chinese carmakers, producing about 300,000 cars a year, and the most significant purely private sector operator. Like Volvo, which makes a similar number of cars, what Geely lacks is scale.

China is now the world's largest automotive market. According to JD Power sales will reach 8.2 million cars in 2009, and grow to 12 million by 2016. The big opportunity then is to bring Volvo to China, where its S40, S60 and S80 are already positioned as luxury vehicles. A mere 5 percent share of the three segments these models compete in would amount to 300,000 units in 2009, and nearly 400,000 units in 2012.

That's the ambition. But getting there will take supreme execution. Geely will need to work with Volvo's domestic management, and Chinese companies do not have much of a tradition of managing complex global companies. One comfort is that Geely is a purely private company and therefore less likely to be distracted by Beijing-inspired investment and production targets.

A second is the presence of Goldman Sachs which is investing $250 million in Geely bonds with warrants over 15 of the company. This makes Goldman the most significant outside investor. The Volvo deal could in theory be a dry-run for other Chinese takeovers of other global brands, so Goldman will have every incentive to help make it work.

Nonetheless, the execution risk remains daunting. Even though Geely Automotive's shares trade at just 15 times next year's earnings, compared with an Asia Pacific sector mean of 30 times, there is still room for disappointment.

Whatever reservations Ford may have had about selling Volvo to Geely and potentially exposing all of its competitive secrets to pirate-infested Chinese markets, they appear to have been laid to rest … for now.

The U.S. automaker named a Geely-led consortium as preferred bidder for the money-losing Swedish unit, estimated to be worth about $2 billion. The news is conspicuously coincidental — as many such stories are — with intensely routine negotiations in Hangzhou between top trade officials of the two countries. Naturally, Ford left open the possibility that it could back out of the deal, saying more detailed talks were needed.

It’s been nearly a year since Ford began efforts to sell Volvo, and only a week ago a source was telling us that concerns about intellectual property rights were threatening to scupper the deal. That followed news of a former Ford engineer’s arrest in the United States on charges of stealing trade secrets from Ford and using them to try to get work with Chinese auto makers. Good thing Volvo is such a safe brand; even with a preferred bidder in place, this asset sale could prove to be a wild ride.

At long last, Europe may see its first sizeable IPO: Aviva says it expects to complete the flotation of its Dutch unit, Delta Lloyd, in November. And shares in Telenor jump 15 percent after it settles a long-standing row with Russia’s Alfa Group. The agreement will involve a pooling of assets between the two companies. For these and other stories on deals, click here.

And here’s what we found of interest in other media today and over the weekend.

Shoprite Holdings Ltd chairman Christo Wiese is looking to swap some or all of his stake in Africa’s biggest grocer for stock in furniture maker Steinhoff, a South African newspaper reports.

Hana Financial Group, South Korea’s No. 4 banking group, is seeking to raise 1 trillion-2 trillion won ($853 million-$1.7 billion) in a rights offering, according to media reports.

A U.S.-led consortium has entered the race to buy Volvo from Ford, the Financial Times reports, in a challenge to China’s Geely Automotive, which confirmed its interest in the money-losing Swedish carmaker last month.

Chinese steel and iron ore group Baosteel has proposed to pay 1 billion pounds ($1.6 billion) for a 30 percent stake in Anglo American’s  huge Minas Rio iron ore mine in Brazil, according to a report.

British housebuilder Taylor Wimpey  is considering the sale of its North American housing operations, which have been hit hard by the global recession, in a bid to cut debt, the Sunday Times reports.

Barclays Bank Plc is likely to enter exclusive talks this week to buy insurer Standard Life’s banking division, the Mail on Sunday reports.

British general insurer RSA has scrapped plans for a $1 billion rights issue to fund major acquisitions and will instead focus on smaller bolt-on buys, the Sunday Telegraph reports.

A Kohlberg Kravis Roberts-led consortium leads the bidding for Northrop Grumman Corp’s TASC unit, the Financial Times reports.

Chinese carmakers are seeking to step into the gaps left by U.S. companies in Europe -- but while acquisitions may give them access to badly-needed technical know-how, global brands and exposure to new markets, the question is whether they have learnt from past failures.

With China now the world's largest car market, it's no surprise that Chinese carmakers -- which have few if any really solid brands within their home market -- want to start making more of a mark.

In theory, foreign acquisitions offer a quick way to do so. Meanwhile the credit crunch has thrown world-renowned but now distressed car marques such as Volvo, Opel or Saab onto the block at what look like rock-bottom prices.

The worry is that Chinese carmakers haven't always found it plain sailing abroad. SAIC Motor Corp is still feeling the pain of buying into Ssangyong Motor Co of Korea. Ssangyong has struggled to compete as South Korea's smallest carmaker, failing to develop new models and running out of cash. A debt-for-equity swap threatens to slash the Chinese company's holding in the South Korean carmaker from just over 50 percent to around 10.

Chinese companies have had more success when they have simply acquired technology and taken it back to China. SAIC had much more success when it bought Britain's MG Rover. In that case, SAIC closed most of the UK manufacturing and used the know-how to launch a mid-range sedan called the Roewe. This has proved successful in China.

It looks as if Chinese manufacturers are trying to emulate SAIC's Rover experiment rather than its Ssangyong adventure.

Although Chinese carmakers looked at Opel, they backed away from trying to buy it outright. Geely Automotive has now stepped forward as a possible partner for Opel's new owner, Canadian car company Magna. But it looks as if its role may be more as that of a supplier of manufacturing capacity than an outright owner of the brand.

In the case of Saab, Beijing Automotive Industry Corp (BAIC) has agreed a deal with supercar manufacturer Koenigsegg to help fund its purchase of the iconic Swedish company.

BAIC is shelling out 275 million euros ($406 million) and, according to a source close to the deal, will fund future development costs at Saab. The hope is that the Chinese carmaker's involvement could dramatically increase the number of cars Saab is able to produce and sell in China, while still preserving Swedish jobs.

Most Chinese carmakers have been wary of making a major step outside their own market. Chery Automobile, Hunan Changfeng Motors Co and others have all kicked the tyres of various European or U.S. auto brands but walked away. It still seems that they are wary of trying to manage large foreign manufacturing operations -- perhaps for good reason having seen how difficult it is even for indigenous managers.

The cherry picking approach -- tapping into brands and technology without full ownership -- probably makes more sense, especially at a time when prices are low. The key question is whether the Chinese can lift the brands they pick up off the scrapheap. BAIC will be hoping that, like Rover, Saab can find a new lease of life on the streets of Beijing.

As of Friday, there was no knowing how much longer funding for the program will last. The Obama administration has reassured car shoppers and dealers that any trade-ins over the weekend will be honored at rebates for up to $4,500. Meanwhile, the U.S. House rushed to triple funding  for the program, adding another $2 billion in a bill that heads to the Senate where it could face tougher scrutiny.

U.S. car sales for July, set to be released on Monday, are expected to show a turbocharged boost from the government program, a sleeper success in a string of policy steps aimed at stabilizing the U.S. auto industry that has included government-sponsored bankruptcies at GM and Chrysler.

Before the rush of clunker trade-ins, analysts had been looking for industry-wide July auto sales to top 10 million units, the highest rate of 2009 and an encouraging sign the market has turned the corner. Investors have discounted some of that recovery. Shares in AutoNation, the No. 1 dealership group, have gained 48 percent since the start of the second quarter. Shares in the No. 2 dealership group, Penske Automotive Group, have more than doubled.

With inventories tight, automakers also stand to gain as production — and revenues — increase in the second half. July sales data will help sort the winners from the losers, but the early anecdotal evidence suggests that the some of the biggest gains have gone to the automakers that were already outperforming.

The lame duck may have some quack in it yet.

When President Bush said on Thursday that his administration would not allow a “disorderly” bankruptcy or collapse of the U.S. automakers — leaving “orderly” bankruptcy on the table — it seems to have spurred on the negotiations between Detroit and the White House. General Motors and Chrysler are now close to securing emergency loans as part of a U.S. government aid package, according to sources familiar with the talks.

The aid package being spearheaded by the White House would demand that both automakers restructure by seeking new concessions from unions and creditors, two people briefed on the talks said. With the automakers and the United Auto Workers both desperate to stave off a Chapter 11 filing, which they say would be disastrous, the White House’s discussion of “orderly bankruptcy” may have kickstarted negotiations that have been dragging on ever since Congress rejected the bailout bill once and for all.

UPDATE: Bush is now due to make an announcement on the auto rescue plan at 9 a.m. Eastern time.

One remaining uncertainty is where an emergency federal bridge loan would leave Chrysler, widely considered the weakest of the big three U.S. automakers.

Chrysler Chief Executive Bob Nardelli said last month the privately held automaker needs both taxpayer-backed loans and an alliance with one or more automakers to survive. More recently, Nardelli has said the automaker could restructure to emerge as a stand-alone competitor, but most analysts are skeptical.

DEALS OF THE DAY
** Panasonic Corp said it would spend at least $4.5 billion to take control of smaller rival Sanyo Electric Co Ltd , creating Japan’s second-largest electronics maker behind Hitachi Ltd.

** Dassault Aviation signed a deal to buy Alcatel-Lucent’s 20.8 percent stake in defence electronics firm Thales for about 1.57 billion euros ($2.26 billion), Dassault and Alcatel said.

** U.S. hedge fund group GLG Partners has agreed to buy the UK fund management business of French bank Societe Generale, the companies said.

** Steelmaker POSCO said it was considering swapping shares in itself for a stake in South Korea’s KB Financial Group, the parent of Kookmin Bank, which needs to sell shares to meet domestic banking rules.

** Kyobo Securities, a medium-sized South Korean brokerage, said its top shareholder Kyobo Life Insurance had decided not to sell a stake in the broker due to worsening financial market conditions.

** Kookmin Bank, a key unit of South Korea’s KB Financial Group, will sell its stake in ING Group’s South Korean unit for 339 billion won ($263.1 million) this month, the parent group said.

** South Korea’s retail-focused Lotte Group has purchased a stake in a small domestic asset manager from Japan’s Sparx Group for 62.9 billion won ($48.8 million), in a move to bolster its financial business.

For the past decade, Volvo has focused on making safe sexy. Sleek designs and souped-up engines have chipped away at the image of the Volvo as a boxy, baby seat-friendly tank, but it still retains more cachet as a cradlemobile than just about any other car. That could all change with new ownership. 
 
An unnamed source at China’s Changan Automobile tells the National Business Daily that Ford is trying to sell the high-end Swedish car brand to Changan. The report didn’t provide much more detail. 
 
For Ford, such a move is hardly reckless. Though they are in better shape debt-wise than GM and Chrysler, Ford has been looking to unload pricey brands for some time and will need cash to see them through what is expected to be a protracted economic downturn.
 
Chinese automakers may not be in much better shape, though, as the auto market slows globally. While it’s not hard to see why a safety-conscious brand might command a premium in China, a country much maligned for exporting unsafe products, Volvo is hardly alone in the For-Sale spotlight in what is still the world’s fastest growing major economy. 
 
GM may be more desperate to sell its Saab brand - another Swedish safety scion - than Ford is to dump Volvo. Industry sources say U.S. auto companies have approached a number of Chinese companies about possible asset sales but found little interest. The Chinese automaker Chery secured a $1.45 billion loan this week and said it would use the funds to improve its product quality rather than to buy U.S. auto assets.  
  
Deals of the day 
 
* Prudential Financial, Manulife Financial and three other firms are expected to place competing bids for two Japanese life insurers put up for sale by American International Group, according to people familiar with the matter.
 
* India’s Oil & Natural Gas Corp will go ahead with its $2.6 billion takeover of Imperial Energy after a British regulator denied its request for an extension, the Economic Times reported, citing an unidentified person involved in the deal. 
 
* Vodafone said it would make a public offer for navigational and locating services firm Wayfinder Systems, valuing the Swedish company at 239 million Swedish crowns ($30 million). 
 
* UK life insurer Friends Provident will pay 170 million ringgit ($46.8 million) for a 30 percent stake in Malaysia’s AmLife Insurance Bhd as it gears up its presence in Asia.
 
* Australian zinc miner Perilya voiced confidence that its deal to sell a controlling stake to Chinese smelter Shenzhen Zhongjin Lingnan Nonfemet would win foreign-investment approval. The Chinese company will become a majority shareholder in Perilya following a share placement, Perilya said in a statement. 
 
* Oz Minerals, the world’s second-largest zinc miner that is scrambling to refinance its debt, has attracted the interest of several Chinese metals companies, according to three sources with direct knowledge of the matter. 
 
* Land of Leather Holdings said it had terminated talks with potential bidders. 
 
 * Shares in Norwegian information technology group EDB Business Partner rose as much as 11 percent after business daily Finansavisen said Telenor is in talks to sell its 51 percent stake. 
 
* United Business Media, a British publishing and exhibitions group whose PRNewswire distributes corporate press releases, said it acquired Sanguine Microelectronics for an initial $8 million to expand its presence in China.  

(Photo: Reuters/Bob Strong)

As GM’s resident guru, Bob Lutz, was telling CNBC he was guardedly optimistic that a short-term loan will be made available to the auto industry, the global picture clouded considerably. The chief of Italian carmaker Fiat told a magazine the company was too small to survive alone, Sweden was reported mulling a rescue package for Volvo and Saab, and Toyota, the world’s biggest car maker, was said to be eyeing spending cuts of up to 40 percent.
 
Fiat’s chief, Sergio Marchionne, went a little further, prognosticating that Chrysler will disappear and that only six big players will be left around the world when the dust settles. 
 
White House and congressional negotiators are working on an emergency rescue for the struggling industry, but passage of even a slimmed-down lifeline is far from certain. Sen. Richard Shelby, the top Republican on the Senate Banking Committee, has threatened a filibuster to block any bailout, according to Politico.com. The Senate is due back in session today.
 
Shelby, an Alabama Republican who has spoken out against the proposed “bridge loan” emergency package, indicated he was ready for battle. “This is a bridge loan to nowhere,” said Shelby, appearing on “Fox News Sunday” with Sen. Carl Levin of Michigan, a Democrat. Senate Banking Committee Chairman Christopher Dodd, who is leading efforts to craft bailout legislation, told CBS that GM Chairman Rick Wagoner should resign. Levin, whose state is home to the major automakers, said he was confident there would be a deal but was less certain a filibuster could be avoided.
 
Deals of the day:
* San Miguel will buy a majority stake in Petron from the Ashmore Group for about 32.8 billion pesos ($675 million) after the British investment company completes a deal with the Philippine government, San Miguel’s president said.
* U.S. energy producer Arch Coal expects production in 2009 to be flat or slightly lower while overall output for the U.S. coal industry will slow, and also sees plenty of opportunity for acquisitions amid the economic downturn.
* Hedge Fund firm Centaurus is likely to sell its minority stake in French IT services group Atos Origin, but not in the immediate future, sources close to the matter said.
* Belgian-Dutch financial services group Fortis has upped the selling price of its Belgian insurance unit, which French peer BNP Paribas agreed to buy, a Dutch newspaper said. * One potential investor has already cast its eye over Latvian bank Parex, which the state has had to rescue, an official at the country’s bank supervisory body was quoted on as saying.
* Investment group Evolve Capital said it had offered 10.7625 pence a share to buy niche investment bank Blue Oar in a deal that would value the company at 17.9 million pounds ($26.3 million).
* British mid-sized broking firms Ambrian Capital and Panmure Gordon & Co said they have held talks regarding a possible merger between the companies.
* Qantas Airways warned investors its proposed $5.6 billion merger with British Airways faced major obstacles over the terms of the deal and stressed there was a reasonable chance talks would fail.
* French healthcare diagnostics group BioMerieux said it had acquired privately held PML Microbiologicals, a U.S-based provider of culture media and microbiological products.
* Peabody Energy, the most valuable U.S. coal miner, said it is eyeing potential investments in the western regions of China, the country that is expected to drive much of the global growth in demand for coal.
* Swiss drugmaker Roche Holding is still committed to its $43.7 billion bid to buy out U.S. biotech group Genentech, its chief executive was quoted as saying in an interview. * Santos, Australia’s third-largest oil and gas firm, was considering potential initiatives but talk of a possible bid from China National Petroleum Corp (CNPC) was pure speculation, the company said.

(Photo: Reuters/Joachim Hermann)

After day one of round two of the $34 billion automaker race to viability, a merger between GM and Chrysler is back on the table, along with just about everything else. Lawmakers are looking for that magic headline that will make the bailout make sense to taxpayers. Senate Banking Committee Chairman Sen. Chris Dodd noted that nothing focuses attention on solutions like impending death.

So far, prospects of an auto czar doling out big chunks of money or a federally mandated merger haven’t convinced the Treasury to use its mighty TARP chest to fund salvage efforts for the auto industry. The Fed could make a loan to automakers in some circumstances. It is expected to send a letter to Dodd today explaining how it must obtain sufficient collateral under law to make any emergency loans, a source familiar with the letter told Reuters.

Motor Trend’s blog argues that a shot-gun wedding would just allow GM to replenish a brand line-up that it has just shrunk to make itself more nimble. In his testimony, GM CEO Rick Wagoner noted that earlier merger talks with Chrysler failed because GM did not have the money.

Chrysler CEO Robert Nardelli said his job would likely be the first to go in a merger with GM, but “I would do it” if it would save Chrysler and its workers. Such self-sacrifice is about as heartwarming as the auto execs taking hybrids to Washington instead of jets. Nardelli has already said he is willing to have his salary cut to $1, which is where it is already. His severance package from his days at Home Depot will ensure that he can always afford to buy a car.

But if lawmakers are hoping a merger will somehow resuscitate the industry, they may want to think again. United Auto Workers President Ron Gettelfinger questioned claims of cost savings from a merger and said such a deal would bring “unbelievable” job losses. No congressional action on aid is expected before next week — and perhaps not even then — despite dire warnings that GM could collapse by year-end without aid.

So what the industry hopes is the final lap around Congress begins in a few hours, right back where it started. Meanwhile, the rest of the world’s auto industry is choking. Global sales at BMW, the world’s top premium carmaker, plunged by 25 percent in November, and Honda backed out of Formula One racing.

Deals of the day:

* China’s new anti-monopoly authorities were due to begin their review of BHP Billiton’s bid for Rio Tinto on the very day BHP scrapped its bid, a top anti-monopoly official said.

* Bloomsbury Publishing has acquired John Wisden & Co, the publisher of Wisden Cricketers’ Almanack, in a move to boost its presence in reference and sport publishing, the company said.

* A decision on the takeover of the Luxembourg arm of troubled Icelandic bank Kaupthing , will be postponed for technical reasons, a spokesman for Belgian Prime Minister Yves Leterme said.

* Oil and gas explorer White Nile Ltd said it planned to shift its focus and invest in agricultural sector in Africa as its operations in Southern Sudan would not begin before January 2011 when the region holds a referendum on total independence.

* Australian coal miner Felix Resources is in talks about a possible takeover by China’s third-biggest miner, Yanzhou Coal Mining Co Ltd, a source familiar with the process told Reuters.

* South Korea’s Doosan Corp is considering selling its spirits-making division after receiving “attractive” offers for the business, the group said, in a deal reportedly worth up to $500 million.

* E.ON expects to start the sale of its German power network early next year and could merge it with that of rival Vattenfall, E.ON Chief Executive Wulf Bernotat told a German newspaper.

* Tea producer Mcleod Russel India Ltd said the Reserve Bank of India has allowed foreign funds to buy shares up to 40 percent of the company’s paid-up capital from the earlier level of 24 percent.

* Two component-making units of LG Electronics called off a merger plan, citing the heavy cost to buy out minority shareholders amid deteriorating financial conditions.

* South Korea’s Hynix Semiconductor is interested in Infineon’s loss-making chipmaker Qimonda , a senior German politician was quoted as saying, but Hynix denied it.

(Photo: Reuters/Larry Downing)

Detroit’s Big Three were on Capitol Hill yesterday looking for a bigger bailout. They knew the results numbers coming out this morning would be grim and would offer little cheer for the future. The $700 billion in financial industry aid that motored through Congress last month must have flashed a big green light for the auto industry.

Originally, $25 billion in loan guarantees were offered to help U.S. cars get greener. But the car companies say the restrictions on how they can use that money make it less than helpful. In fact, GM and Chrysler might not even pass a financial viability test attached to the funds: If strictly enforced, the test could keep them from getting money at all.
 
Enter $50 billion more now being sought by the Big Three. Half of this amount is meant to pay for healthcare and other benefits for retired autoworkers. The other half would help to ensure solvency — perhaps making GM and Chrysler healthy enough to qualify for the initial aid.
 
To put the total proposed package in perspective, it amounts to a rebate of roughly $5,500 on every car, minivan, SUV and crossover that will be sold in the United States this year.

Deals of the day:

* Panasonic said it would acquire smaller rival Sanyo, creating Japan’s top electronics maker and foreshadowing further consolidation in an industry hit by slowing consumer demand.

* In Australia, Independent News & Media’s likely A$555 million ($370 million) sale of its APN News & Media stake is littered with challenges, giving cashed-up buyers such as Seven Network Holdings the upper hand in the deal.

* Russia’s antitrust office has allowed Indian energy firm ONGC to buy London-listed, Russia-focused oil firm Imperial Energy, a spokesman for the office said.

* Shares of Indonesia’s largest coal producer, PT Bumi Resources, opened down almost 10 percent, despite a plan by Philippine conglomerate San Miguel to bid for a 51 percent stake in the company.

* U.S. newspaper publisher and broadcaster Tribune may end up holding 50 percent or more of its storied Chicago Cubs baseball franchise as the credit crunch stalled sales talks, the Wall Street Journal said.

* Daiichi Sankyo, Japan’s No. 3 drugmaker, said it had completed the takeover of India’s Ranbaxy Laboratories, buying a 63.9 percent stake for 199.8 billion Indian rupees ($4.20 billion).

* Microsoft, capitalizing on Google regulatory snarl, is working to steal a deal with Verizon Wireless away from its rival, the Wall Street Journal said.

* Dutch private bank Van Lanschot bought banking and insurance group ING’s private banking operations in Curacao, the companies said.