Denway Shares Halted Pending Statement Regarding Guangzhou Auto Share Swap

Denway Motors Ltd., the carmaker being taken over by Guangzhou Automobile Group Co., halted trading of its shares in Hong Kong ahead of an announcement on the deal.

The suspension followed a two-day, 12 percent share-price jump for Denway, which said May 19 Guangzhou Auto had offered stock valued at HK$26 billion ($3.3 billion) in exchange for full control of the Hong Kong-based company. Denway requested today’s suspension, it said in a statement.

An acquisition would strengthen Guangzhou Auto’s partnerships with Japan’s Toyota Motor Corp. and Honda Motor Co., helping it compete with rival Chinese automakers SAIC Motor Corp. and Dongfeng Motor Group Co. The Guangzhou, Guangdong province- based carmaker, which has been seeking a public listing since 2008, plans to list its own shares by the end of July.

Guangzhou Auto “is a leading automaker in China and its growth outlook is strong,” Olive Xia, an analyst at Core Pacific-Yamaichi International HK, said in a phone interview. “Other major automakers have already listed.” The company may seek the listing to broaden its capital base and help it expand, she said.

Louisa Hung, a spokeswoman at Denway, declined to comment on the pending announcement. Winnie Lo, a spokeswoman for Guangzhou Auto at FD International, also declined to give further details.

Plan on Track

Guangzhou Auto’s plan to list its own shares is still on track, Lu Sa, secretary to the automaker’s board, said by phone today. The company remains in talks with Denway shareholders, she said, declining to comment further.

Denway shares rose 5.7 percent on June 4 to close at HK$3.54. That was the highest level since May 19, when Guangzhou Auto’s offer was announced and a previous suspension of the shares was lifted.

Denway fell a record 24 percent on May 19 as the offer valued Guangzhou Auto stock at a higher multiple of earnings than rival carmakers.

Denway holds 50 percent of Guangqi Honda Automobile Co., a joint venture with Tokyo-based Honda that is adding production of the Accord Crosstour wagon this year. In 2011, the venture has announced plans to introduce the Everus sedan, the first car made under its new Li Nian brand.

Toyota, Honda

Guangzhou Auto makes the Accord sedan, Fit compact and Odyssey minivan with Honda. The company also produces Camry sedans and Highlander sport-utility vehicles with Toyota in the city of Guangzhou.

Guangzhou Auto’s acquisition of Denway would create a company with a combined value of as much as $10.6 billion, based on estimates by Anglo Chinese Corporate Finance Ltd., an adviser on the deal.

Guangzhou Auto may record a profit of 3.76 billion yuan ($550 million) this year, without taking into account the privatization of Denway, the company said on May 19. Guangzhou Auto had 2 billion yuan in profit last year. By the end of 2010, the automaker aims to boost annual production capacity to more than 1 million vehicles, from 606,600 units in 2009.

--Tian Ying, Liza Lin. Editors: Kae Inoue, Chana Schoenberger

To contact Bloomberg News staff for this story: Tian Ying in Beijing at +86-10-6649-7571 or ytian@bloomberg.net

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