Volvo purchase: an exceptional Chinese deal?

Zhejiang Geely Holding Group’s acquisition of Volvo from Ford for US$1.8bn means a Chinese carmaker has finally succeeded in reaching agreement to buy a Western marque. Ford originally put the Swedish brand up for sale nearly three years ago, as GM looked for a buyer for its notoriously gas-hungry Hummer.

Sichuan Tengzhong Heavy Industrial Machinery, advised by Credit Suisse, agreed to buy Hummer last June but that deal was later shelved. Similarly Beijing Automotive Industry Holding Co pulled out of a possible purchase of GM’s Swedish asset Saab. That deal had been fronted by smaller Swedish luxury carmaker Koenigsegg.

At the time, advisers murmured that these deals had been killed by the Chinese authorities baulking at allowing smaller vehicle makers in the unconsolidated Chinese market buying tired Western consumer brands. These would have needed significant investment to be restructured.

Geely, which is backed by a Goldman Sachs private equity fund, is in a different league. Its move, principally funded by US$1.6bn cash, looks credible and Volvo is in better shape and might need less effort to turnaround, fuelled by rampant Chinese demand, than other autos on the block. One estimate says China’s will post 12% annualised GDP growth this quarter.

That said, the Chinese state itself, although backing private company Geely’s deal, still seems more focused on easier asset deals. On the same day state oil company Sinopec has splashed out US$2.5bn on African assets, this time offshore from Angola. Ironically these were owned by Petrochina.

The afternoon deal: Trend spotting

DROIDSpotting a trend is an essential skill for M&A reporters. Is the sector consolidating? Collapsing? Where will the next deal be? Following is a list of M&A stories and the trends they may foretell.

More takeovers likely for hard-hit satnav firms
“Following several takeovers, remaining players in the satellite navigation sector are rethinking strategies and some are set to sell out under pressure to survive, industry sources and analysts say.”

New doubts surface over AIG’s $2.2 billion Nan Shan deal (Reuters)
“The bid raised concern among Taiwanese politicians about the mainland’s intentions toward Taiwan, which Beijing views as a renegade province.”

Duane Reade and Its Road to Health
“But Duane Reade is as much a story about selling milk and toothpaste at 2 a.m. as it is about Wall Street, financial engineering and shifts in the private equity industry.” – NYT

Tengzhong may buy Hummer via offshore vehicle (Reuters)
“Support from Beijing has been critical for Chinese firms that have embarked on a series of deals to pick up distressed assets from a global auto industry reeling from overcapacity and sharply depressed demand during the worldwide recession.”

Wal-Mart Adds Its Clout to Movie Streaming
“The acquisition adds a forceful player to what is already a crowded field of companies aiming to deliver streamed entertainment to the living room.” – NYT

Could Chinese bid for Hummer go off-road?

China’s Tengzhong is having a hard time selling the People’s government on its big, bold plans to buy Hummer. That in and of itself should be enough to kill the deal. But there is some talk that the little-known construction machinery company, with no experience in the auto industry, is hungry enough for Hummer to use an offshore vehicle to buy the GM brand if it fails to win Chinese regulatory approval.

“Tengzhong has not given up hope yet to win government approval, but buying Hummer through an offshore investment vehicle could be an option if it can’t get the green light,” a source close to the deal, who asked for anonymity due to the sensitivity of the issue, told our reporters Fang Yan and Jacqueline Wong report from Shanghai.

Analysts told them the production base of the off-road sport utility vehicle would have to remain outside China to get such a deal to fly. That could be a monster-truck-sized roadblock, since it would mean the company would not have access to China’s biggest asset — its giant, cheap labor force.

Deals du Jour

Deutsche Telekom and France Telecom have confirmed they are talking to combine their UK mobile operations in a JV. And Abu Dhabi’s ATIC has offered to buy Chartered Semiconductor — another sign that M&A is picking up after Kraft/Cadbury?

For all Reuters deals news, click here.

Just one story we picked up from other media today: Chinese machinery maker Tengzhong is still working to close a deal with General Motors Co to buy the U.S. automaker’s Hummer brand after a regulatory setback, Chinese media reported.

GM to sell assets to “newco,” future of “oldco” still uncertain

gmA U.S. federal judge has authrorized the sale of General Motors’ most profitable assets to a “new GM,” backed by the government, in a move seen as crucial for the automaker to exit bankruptcy protection.

The decision by Judge Robert Gerber of the U.S. bankruptcy court in Manhattan came after three days of hearings to address the 850 objections to the restructuring plan. In his 95-page opinion, Judge Gerber wrote that the sale would “prevent the death of the patient on the operating table.”

Under the terms of the revised deal, G.M. would sell its best assets, including the Chevrolet, Cadillac, Buick and GMC brands, to a new company owned largely by the American and Canadian governments and a health care trust for the United Automobile Workers union.

Big car. Smaller and smaller offers.

HummerThe number of bidders for GM’s Hummer brand has narrowed down to three, with current offers ranging from $100 million to $200 million in cash, in addition to other commitments, sources told Reuters.

That would be a further comedown from what was already a comedown — investment bankers initially estimated that the iconic gas guzzler could fetch between $500 million and $750 million, considering it a distressed asset.

Last month, GM turned back a Kentucky industrialist with a lowball bid, who had also put together plans for new powertrain options for Hummer, including a hybrid version of the H3 that would double its fuel economy from the current 14-to-18 miles per gallon, a source said.