Geely chair­man builds $9 bil­lion stake in Ger­many’s Daim­ler

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The chair­man of Chi­nese car­maker Geely has built up an al­most 10 per­cent stake in Mercedes-Benz owner Daim­ler, mak­ing a $9 bil­lion bet that he can push through an al­liance to ac­cess the Ger­man company´s tech­nol­ogy.

The pur­chase by Li Shufu, Geely´s founder and main owner, means China´s largest pri­vately-owned au­tomaker is now Daim­ler´s big­gest share­holder.

Geely said there were no plans “for the time be­ing” to raise the stake fur­ther.

In­stead, it will seek to forge an al­liance with Daim­ler, which is devel­op­ing elec­tric and self-driv­ing ve­hi­cles, to re­spond to the challenge from new com­peti­tors such as Tesla, Google and Uber, which are all work­ing on their own new tech­nol­ogy cars.

“No cur­rent car in­dus­try player is likely to win this bat­tle against the in­vaders from out­side with­out friends. To achieve and as­sert tech­no­log­i­cal lead­er­ship, one has to adapt a new way of think­ing in terms of shar­ing and com­bin­ing strength. My in­vest­ment in Daim­ler re­flects this vi­sion,” Li said.

Only two or three man­u­fac­tures will likely sur­vive in the auto in­dus­try go­ing for­ward, a source fa­mil­iar with Li´s think­ing told Reuters, prompt­ing Geely to seek ac­cess to car­mak­ers with a tech­no­log­i­cal edge.

Its move on Daim­ler poses a challenge to the Ger­man car­maker, since Mercedes-Benz al­ready has an in­dus­trial al­liance to de­velop cars and trucks with Re­nault-Nis­san, which owns a 3.1 per­cent stake in Daim­ler, and has an­nounced plans to build elec­tric cars with ex­ist­ing Chi­nese joint-ven­ture part­ner BAIC Mo­tor Cor­po­ra­tion.

Bern­stein Re­search an­a­lyst Max War­bur­ton said: “It´s not clear what Geely wants and how it´s go­ing to work, but we view this move as part of a broader Chi­nese move to gain in­volve­ment in the Euro­pean au­to­mo­tive in­dus­try.”

“China wants a pay­back af­ter spend­ing a decade gift­ing the Euro­pean auto in­dus­try su­per-nor­mal growth and prof­its. Now it wants more di­rect ac­cess to tech­nol­ogy, brands and prof­its,” he wrote in a note, shortly af­ter the stake was dis­closed in a regulatory fil­ing.

Ger­man state sec­re­tary at the econ­omy min­istry, Matthias Mach­nig, said EU trade min­is­ters would dis­cuss how bet­ter to pro­tect strate­gi­cally im­por­tant Euro­pean com­pa­nies from un­wanted in­vestors.

“It is im­por­tant that Eu­rope keeps a close eye on which key Euro­pean tech­nolo­gies for­eign strate­gic in­vestors are set­ting their sights on,” he said.

Mach­nig did not com­ment specif­i­cally on Daim­ler. Daim­ler is the only one of Ger­many´s three car­mak­ers not to be con­trolled by a fam­ily.

Volk­swa­gen is majority-owned by the Porsche-Piech clan, while BMW is 47 per­cent owned by Su­sanne Klat­ten, Ger­many´s rich­est woman, and her brother Ste­fan Quandt.

Zhe­jiang Geely Hold­ing has been on an ex­pan­sion drive. It owns Volvo Cars, LEVC, the maker of London´s black cabs, and last year took a majority stake in sports car maker Lo­tus, a 49.9 per­cent stake in Malaysian au­tomaker Pro­ton, a $3.3 bil­lion stake in Volvo Trucks and con­trol of fly­ing car start-up Ter­rafu­gia.

An­a­lyst Arndt Ellinghorst of Ever­core ISI said: “We only be­lieve that Geely would con­sider an in­vest­ment of this mag­ni­tude if there was a more sig­nif­i­cant in­dus­trial op­por­tu­nity from co­op­er­a­tion between Geely/Volvo and Mercedes.”

The stake pur­chase fol­lows an ini­tial ap­proach last Novem­ber, when Li sought to buy a Daim­ler stake as a way to ac­cess Mercedes-Benz tech­nol­ogy for elec­tric cars and trucks, in­clud­ing bat­tery tech­nol­ogy, to help Geely com­ply with a Chi­nese crack­down on pol­lu­tion.

Geely sees po­ten­tial in Daim­ler be­cause it is devel­op­ing high-speed in­ter­net con­nec­tions for au­ton­o­mous cars at a time when Li be­lieves satel­lite-based in­ter­net con­nec­tions could be­come more im­por­tant for the auto in­dus­try.

In Novem­ber, Geely asked Daim­ler to is­sue new shares so it could buy a stake, but the Ger­man company turned down the of­fer say­ing it did not want to di­lute ex­ist­ing share­hold­ers.

Li changed tac­tics, and qui­etly amassed a stake of 9.69 per­cent worth $9 bil­lion at Daim­ler´s cur­rent share price.

Nor­mally, in­vestors are re­quired to in­form the Ger­man fi­nan­cial reg­u­la­tor and the mar­ket when their share of a public company reaches 3 and then 5 per­cent.

Ger­man watch­dog Bafin did not im­me­di­ately re­spond to re­quests for com­ment on whether it was look­ing into Geely´s ac­qui­si­tion of the Daim­ler stake.

The Ger­man econ­omy min­istry said there are le­gal reg­u­la­tions that have to be ad­hered to in takeovers and it is the duty of in­vestors to fol­low these and to check them.

Chi­nese in­vestors in Ger­man tech­nol­ogy com­pa­nies have tended to take a consensual ap­proach, buy­ing in­cre­men­tal stakes in com­pa­nies such as ro­bot­ics firms Kuka and Kion, typ­i­cally af­ter long con­sul­ta­tion with man­age­ment and other stake­hold­ers.

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