Ford Reaches Definitive Agreement to Sell Volvo Cars and Related Assets to Geely

At the press conference Sunday afternoon (CET). Left to right: Stephen Odell, CEO of Volvo Cars; Li Shufu, chairman of Zhejiang Geely Holding Group Company Limited; Lewis Booth, Ford’s chief financial officer. Click to enlarge.

Ford Motor Company has entered into a definitive agreement to sell Volvo Car Corporation and related assets to Zhejiang Geely Holding Group Company Limited. The sale is expected to close in the third quarter of 2010, and is subject to customary closing conditions, including receipt of applicable regulatory approvals.

The purchase price for Volvo Cars and related assets (primarily intellectual property) is US$1.8 billion, which will be paid in the form of a note in the amount of US$200 million, and the remainder in cash. The cash portion of the purchase price will be adjusted at close for customary purchase price adjustments relating to pension deficits, debt, cash and working capital, the net effect of which could be a significant decrease in the cash proceeds to Ford.

Ford will continue to cooperate with Volvo Cars in several areas after the sale has been completed in order to ensure a smooth transition, but will not retain any ownership in the Volvo Cars business.

Following completion of the sale, Ford will continue to supply Volvo Cars with, for differing periods, powertrains, stampings and other vehicle components. As part of the sale, Ford also has committed to provide engineering support, information technology, access to tooling for common components, and other selected services for a transition period to ensure a smooth separation process.

Ford and Geely have established agreements to govern the use of intellectual property; these agreements will allow both Volvo and Ford to deliver their business plans and provide appropriate safeguards against misuse. These agreements also will allow Volvo Cars to grant sublicenses to certain portions of Ford’s intellectual property used by Volvo Cars to third parties, including Geely.

Volvo is Volvo and Geely is Geely. Volvo will be run by Volvo management. It will have strategic independence, and we are determined to preserve the distinct identity of the Volvo brand. We regard Volvo as a Swedish business with a strong Scandinavian heritage.

I want to make a personal statement. We are committed to expanding the output and global reach of Volvo, while maintaining the existing manufacturing footprint and sales network of the company. Volvo will gain from Geely’s deep understanding of the market in China.

—Li Shufu, chairman of Zhejiang Geely Holding Group Company Limited

During the press conference announcing the agreement, Stephen Odell, CEO of Volvo Cars noted that while Volvo currenetly is selling more than 30,000 units per year into the China market, that total market could be as large as 17 million units per year. The relationship with Geely will help Volvo seize a larger share, he said.