China Automaker Acquires Volvo for $1.8 Billion; Pension Deficit to Reduce Price Tag

(March 29, 2010) – In a $1.8 billion deal, Zhejiang Geely Holding Co., China’s largest private-run carmaker, has agreed to buy Volvo Cars from Ford Motor Co., more than a year and a half after the companies began discussions. However, the value of the deal will be largely determined by Volvo’s pension deficit.

According to a news release on Ford’s Web site, the deal is subject to negotiations on Volvo’s pension deficit, debt and working capital, and Ford said the $1.8 billion price would be significantly reduced once deductions for those items were included. Under the transaction, Ford will receive a $200 million note and the remainder in cash from Geely. Yet, Ford will still be obligated to cover some existing Volvo pension plans and debt, while supplying parts to Volvo well into the future.

“Volvo is a great brand with an excellent product lineup,” said Alan Mulally, Ford’s president and CEO, in a news release. “This agreement provides a solid foundation for Volvo to continue to build its business under Geely’s ownership. At the same time, the sale of Volvo will allow us to further sharpen our focus on building the Ford brand around the world…”

Ford paid $6.5 billion for Volvo when it purchased the company in 1999, and since then Volvo has suffered continuous losses. The purchase by Hangzhou, China-based Geely represents the biggest oversees acquisition by a Chinese automaker and Geely’s stance as a global player on the automotive scene. The deal also shows opportunity for carmakers in emerging economies to shine amid America’s struggling auto market. In 2008, for example, India’s Tata Motors acquired Jaguar and Land Rover from Ford and last year, China’s Beijing Auto purchased technology from GM’s Saab unit.

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The Chinese and US companies aim to complete the deal in the third quarter. While Geely will appoint a new board of directors, it will maintain Ford’s Volvo division as an independent company. Additionally, Volvo will retain its management and headquarters in Gothenburg, Sweden.

In 2009, China surpassed the US to became the world’s largest car market after thriving sales allowed automakers to expand into Western markets. Geely, one of the largest automakers in China, manufactures more than 30 models and operates six plants in the country.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

(March 29, 2010) — The Ontario Teachers Pension Plan (Teachers’), Canada’s largest pension plan, has beaten European buyout firm CVC Capital Partners to acquire UK’s national lottery operator, Camelot, in a $576 million deal.

With pension funds increasingly bypassing secondary vehicles, such as private-equity, sector or index funds, to control equity investments independently, the Teachers’ acquisition may signal pension funds’ advantage over private equity. More than half of Teachers’ equity investments are made directly in companies, and other funds, such as the $200 billion California Public Employees’ Retirement System, are propagating the trend, offering vendors the advantage of longer-term ownership.

“As a pioneer in direct investing, and with an excellent global investment track record, we look forward to partnering with management to realize the full potential of the Camelot business over the remaining license term and into the future,” said Wayne Kozun, Teachers’ vice president for long-term equities, in a statement.” Wayne added that as a pension plan, the fund has a long-term time horizon, as it can be 70 years or more from the time a teacher‘s career begins until the last survivor pension payment is made. “We’re known as a patient investor,” he said. Camelot’s five shareholders — Cadbury Plc, Thales SA, Fujitsu Ltd., De La Rue Plc and Royal Mail Group Ltd. — each held a 20% share in the fund and has agreed to sell their stakes. Camelot had been reviewing its options since last year, when some of its shareholders expressed interest in selling, Reuters reported.

According to the England-based lottery operator, the transaction is conditional on approval from Camelot’s regulator, the National Lottery Commission, a process that can take three months. Camelot has run the lottery, one of the most popular forms of gambling in the UK., since in began in 1994, and in August 2007 it beat its only rival, India-based Sugal & Damani Lottery Agency Pvt. Ltd., to retain its license to operate the lottery for another 10 years, according to Bloomberg.

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Teachers’ manages $87.4 billion of funds and administers the pensions of 284,000 active and retired teachers in Ontario.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742