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Ford shares at $10 in wake of Volvo deal

December 24, 2009

Ford shares at $10 in wake of Volvo deal

The Detroit News

Shares in Ford Motor Co. hit double-digits for the first time since 2005 Wednesday, closing at $10.08, after the Dearborn automaker said it had finalized most of the terms to sell its Swedish brand, Volvo, to China’s Zhejiang Geely Holding Group Co.

Ford and Geely expect to sign an agreement in March and complete the sale by June 30. Ford had hoped to sell Volvo by last July. Still, the deal with Geely stands in sharp contrast to General Motors Co.’s failed bids to sell its Swedish brand, Saab, and further underscores the progress Ford has made toward restoring profitability.

Key to CEO Alan Mulally’s turnaround plan was shedding Ford’s foreign brands to help pay for a global restructuring and focus the company on fixing core brands Ford, Lincoln and Mercury. Ford already has sold its three British luxury marques — Aston Martin, Jaguar and Land Rover — as well as a controlling stake in Japan’s Mazda Motor Corp.

In a statement early Wednesday, Ford confirmed that "all substantive commercial terms" of selling Volvo had been settled, but "some work still remains to be completed before signing — including final documentation, financing and government approvals."

The announcement broke the silence that has surrounded talks between the companies since Ford identified Geely as its preferred bidder for Volvo in October. It was aimed at helping China’s largest private automaker secure financing and win government approval for the acquisition, according to a source familiar with the negotiations. Geely also released a statement that sought to reassure Volvo employees and the Swedish government, which have both expressed concerns about the sale of one of Sweden’s most respected brands to a Chinese manufacturer.

Ford and Geely hope to sign a final agreement in the first quarter of 2010. Though no terms were released, Ford said it expects to close the sale in the second quarter, pending regulatory approvals.

Analysts expect Ford to get about $2 billion for Volvo, far below the $6.45 billion the automaker paid for it in 1999.

"The prospective sale would ensure Volvo has the resources, including the capital investment, necessary to further strengthen the business and build its global franchise, while enabling Ford to continue to focus on and implement its core One Ford strategy," the Dearborn automaker said.

Ford’s stock closed Wednesday at $10.08 a share, trading above $10 for the first time since September 2005.

While the news about Volvo helped fuel the rise, Ford shares have been going up steadily since the automaker surprised Wall Street with a $1 billion third-quarter profit — its second consecutive quarterly profit. Ford was the only U.S. automaker to eschew a federal bailout and avoid bankruptcy, and has steadily gained market share all year — largely at the expense of GM and Chrysler Group LLC.

But concerns remain about Ford’s debt. While GM and Chrysler were able to shed much of theirs in bankruptcy court, Ford is "highly leveraged," according to ratings agency Standard & Poor’s.

"The company is showing early signs of progress," S&P said in a report Wednesday. "(But) fundamental business risks will remain unchanged well into at least 2010, most notably the company’s exposure to weak vehicle demand globally."

The house that Jacques built

If the sale of Volvo marks the completion of Mulally’s drive to consolidate Ford’s global operations, it also marks the end of the international house of brands former CEO Jacques Nasser worked to assemble in his tenure.

Though the Volvo sale is months behind schedule, Ford has had a far easier time unloading brands than rival GM.

Efforts to sell Saab have failed, most recently last week when talks with Spyker Cars, a Dutch firm, collapsed. Spyker made a new offer to GM on the weekend and continues to pursue a deal.

Last month GM reversed its decision to sell a majority stake in its German unit, Adam Opel GmbH, to Canadian parts maker Magna International Inc. and Russian lender Sberbank. Efforts to find a new owner for its Saturn brand also failed, and a deal to sell Hummer to a Chinese heavy equipment manufacturer has progressed slowly.

Analyst Jim Hall of 2953 Analytics LLP in Birmingham said Volvo was a much more attractive offering than Saab.

"Saab has two passenger cars," Hall said. "Their SUV was a rebadged Chevy. They have no range, and that is why GM had a hard time selling them. Volvo has cars that cover a much broader range."

GM brand sales failed

GM also found it difficult to untangle Saab from its own product development organization. But Ford has been trying to distance itself from Volvo since at least 2008.

Wednesday’s announcement came a year after Ford replaced Volvo CEO Fredrik Arp with Ford veteran Stephen Odell and gave him a free hand to do whatever was necessary to restore profits.

Since then, Volvo has shed some 6,000 jobs and negotiated a tougher contract with its unions. Volvo’s losses narrowed to $135 million in the third quarter from $458 million a year before.

Ford will continue to work with Volvo after the sale, but will not retain a stake in the company.



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