Essay: Funding Sources for the Acquisition of Volvo

15 Apr

Essay: Funding Sources for the Acquisition of Volvo

Sample Essay

Acquiring Volvo was not too simple as a strategy for Chinese global automotive business. Initially, the deal between Geely and Volvo remained under negotiations for long and then finally approved for an overall acquisition value of $2.7 billion (Flaherty, Webb, 2010). Geely was financially strained during the deal, and the funding for Volvo’s acquisition was backed by Chinese financial institutions and regional authorities. The strategy behind the funding was to collect finds in an integrated way that may not necessarily put pressure on a single source. These sources were Chinese commercial banks and regional bodies, who were asked to fund the deal because Geely itself was financially strained (The Local, 2010).

            The breakdown of the total value paid or realized in Geely’s acquisition includes: 1.8 billion for the acquisition of Volvo, out of which $200 million note represented the note for Ford, $1.6 billion in equity and $900 million in the working capital – firm’s current holdings in terms of assets – and the remaining funds out of the total $2.7 billion to be invested in new product development, launch costs, potential plant upgrades and investments in the infrastructure to avoid whether cyclical downturns. Geely paid $1.6 billion in cash while holding the ownership of company’s current assets and liabilities as a cover-up for the deal in total. Geely contributed a very small portion of the total $1.6 billion paid in cash. To further ease the post-acquisition hype for Geely, financial institutions such as bank of China, China construction bank and export import bank of China extended the loan period for Geely to settle its business affairs and other financial agreements (Flaherty, Webb, 2010).

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