Geely emerges as leading bidder to acquire Volvo

Chinese automaker Geely Holding Group Co. has emerged as the leading contender to acquire Swedish automaker Volvo from Ford Motor Co., said several people familiar with the matter.

Ford is in the process of analyzing a recent Geely bid to acquire 100% of Volvo for approximately $2.5 billion, these people said. The offer is higher than Ford or outsiders had expected for a brand that has lost more than $1 billion in recent years. In the quarter ended June 30, Volvo lost $231 million.

The deal may nonetheless be worth far less to Ford, given Geely's proposal to leave behind Volvo pension obligations, unwanted inventory and other substantial restructuring liabilities with Ford, said these people. Such a deal would be similar to Ford's sale of luxury brands Jaguar and Land Rover to India's Tata Motors Ltd. in early 2008. Tata paid $2.3 billion for the two brands. Ford then later contributed $600 million to Tata to cover Jaguar-Land Rover pension plans.

Geely and other Chinese firms want Volvo for its strong brand name and technology. Its dealer network also represents a chance to penetrate the U.S. and European markets with non-Volvo product. Geely has been especially emboldened of late, having just received a $245 million investment from Goldman Sachs Group's private-equity arm.

Geely couldn't be reached to comment late Thursday.

Volvo's technology is becoming a critical feature of the negotiations, say the people familiar with the matter. Volvo contributes collision warning systems, passenger-restraint technology and other safety equipment used by Ford and its other brands.

Ford fears it could be handing over that technology to a company that is expected to become a direct competitor in Europe and North America. Ford officials continue to mull whether the technology "could bleed all over the place," said one person familiar with the negotiations.

Another sticking point has been a preference by Geely and other Chinese automakers to acquire only a portion of Volvo, while Ford has been adamant it wants to part with 100% of the unit.

Originally Geely hoped that Ford would retain at least a 25% stake in Volvo, but Ford has declined to budge, according to a person briefed on the matter. The other remaining bidder is China's Shanghai Automotive Industry Corp., also known as SAIC Motor.

One challenge for Ford: Pulling Volvo out of its operations, having deeply integrated the two since Volvo's purchase for $6.4 billion in 1999.