Geely's Volvo Gamble

Posted on Harvard Business Review: April 15, 2010 3:14 PM

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?