Ford has entered into a definitive agreement to sell Volvo and related assets to Zhejiang Geely Holding Group in a $1.8 billion deal ((£1.2bn), it has been announced.
Following the agreement, the sale is expected to close in the third quarter of 2010. The deal will take so long to close because of the number of approvals required from governments and organisations around the world to clear the deal.
Geely will own Volvo outright, with Ford retaining no shareholding in the company. Ford paid £4.34bn for Volvo when it bought it in 1999, and Volvo has not made a profit for the company since 2005. Geely, founded in 1986, is China's tenth largest car maker.
However, Ford will continue to supply Volvo with powertrains, stampings and other vehicle components for unspecified periods. 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 an unspecified transition period.
Ford and Geely have also established protocol agreements to govern the use of intellectual property; these agreements will also allow Volvo to grant sublicenses to certain portions of Ford’s intellectual property used by Volvo to third parties, including Geely. The IP deals are expected to last the length of Volvo's current product cycle.
All but $200 million - which will be paid at a later date - of the purchase price will be paid in cash. . Ford also noted in its official statement that the final price Geely pays will be subject to a final investigation into Volvo's financial status at the time of the completion, with items such as pension obligations potentially altering the final payment price.
“Volvo is a great brand with an excellent product line-up. This agreement provides a solid foundation for Volvo to continue to build its business under Geely’s ownership,” said Alan Mulally, Ford’s president and CEO in a statement.
“At the same time, the sale of Volvo will allow us to further sharpen our focus on building the Ford brand around the world.”
Geely Chairman Li Shufu travelled to Sweden on Friday to finalise the deal, which reports suggest will be funded by financing from banks in China, the USA and Europe, including low-interest loans guaranteed by the governments of Sweden and Belgium.
Geely's Hong Kong-listed unit, Geely Automobile Holdings Ltd., and some Chinese local governments will also invest in the deal, according to unconfirmed reports.
Shufu said: "We are pleased to have reached this agreement with Ford, enabling us to safeguard and strengthen Volvo's renowned brand heritage. This transaction will ensure Volvo's continued leadership in the premium segment, where it enjoys a global reputation for safety and environmental-friendly technologies.
"This famous Swedish premium brand will remain true to its core values of safety, quality, environmental care and modern Scandinavian design. As part of the proposed transaction, Zhejiang Geely Holdings will maintain the strong collaborative relationships that Volvo has built with employees, unions, suppliers, dealers and above all, customers.
"On completion, Volvo Cars will be a separate company with its own management team based in Gothenburg, Sweden, and a new board of directors."
Geely also confirmed Stephen Odell, Volvo's CEO, will remain in his current position. Shufu said: "We have high regard for the current team, and believe this team will deliver for Volvo."
Shufu also said that manufacturing will continue in Sweden and Belgium in the long-term, dismissing talk it would transfer to China. "We want to be close to our supplier chain and markets," he said, speaking of the "unliberated" potential of the company that drew him to the purchase. "It is our intention to remain in Gothenburg in the long-term."
He did say that Volvo would expand its operations in China, however, but declined to outline the extent of his plans beyond saying that Geely's sales network could provide a huge platform from which to sell cars. Reports suggest one of Geely's first moves will be to build a plant with the capacity to build 300,000 cars in China.
Shufu said: "China, the largest car market in the world, will become Volvo's second home market. Volvo will be uniquely positioned as a world-leading premium brand, tapping into the opportunities in the fast-growing China market."
Geely believes Volvo has the potential to sell 200,000 cars a year in China immediately. The company wants to use Volvo's manufacturing capacity fully in Europe, which would mean selling 600,000 vehicles there and in North America.