Daimler takes stake in Chinese carmaker

The Financial Times, February 1, 2012

Daimler will pay €640m to acquire a minority stake in the car division of Beijing Automotive, its Chinese joint venture partner, as it seeks to catch up with BMW and Audi in China’s fast-growing premium car market.

The Stuttgart-based car and truckmaker has agreed to acquire 12 per cent of BAIC Motor, China’s fifth-largest domestic carmaker by sales, ahead of BAIC’s initial public offering this year.

Daimler, which will take two seats on BAIC’s board, said it will be the first western carmaker to own a direct equity stake in a Chinese car company.
Meanwhile, Daimler will cede to BAIC the control of its local production joint-venture that makes two Mercedes-Benz saloons and a sports-utility vehicle. This will allow BAIC to consolidate those operations ahead of its IPO.

In return the German company will take a controlling 51 per cent stake in their sales joint venture.

Xu Heyi, BAIC chairman, said the deal would help Mercedes-Benz boost its business performance in China. Bodo Uebber, Daimler chief financial officer, said the stake purchase would help Daimler “be part of the growth of one of [China’s] major domestic participants”.

Last year Mercedes-Benz overhauled its Chinese sales organisation and appointed Hubertus Troska to a newly created board position with responsibility for China after its sales there lagged well behind Volkswagen-owned Audi and BMW.

Mercedes-Benz sales in China increased 1.5 per cent last year compared to an increase of 30 per cent at Audi and 40 per cent at BMW.

Max Warburton at Bernstein Research said: “This is part of Daimler’s huge effort to get itself back in [the] game in China. It’s ticking all the boxes politically . . . The Chinese government like to see original equipment manufacturers putting capital and commitment into China.”

But he added: “Daimler’s recent problems in China have been a consumer problem, not a political problem. How do they get Chinese consumers back into the brand again? That’s probably the more complex bit.”

Bill Russo, head of Synergistics auto consultancy in Beijing and former head of Chrysler in China, said: “This deal is a first step in a larger scheme to allow BAIC to raise funding through the capital markets. Having a majority stake (in the joint venture) signals to the Chinese authorities that BAIC is in a position of control.”

Daimler’s investment in BAIC will occur through the issuance of new shares. The deal is expected to close around the end of this year.

Daimler also has a Chinese truck joint venture with Foton Motor, a van joint venture called Fujian Benz, and an electric car joint venture with BYD. 

Meanwhile, BAIC has a separate car production joint venture with Hyundai.

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