Pending Volvo sale to help Ford Motor reduce debt

The sale of Volvo Car Corp. would help Ford Motor Co. reduce its debt and eliminate a longtime distraction, analysts said Wednesday after Ford said it is close to a final deal.

Both Ford and Chinese automaker Zhejiang Geely Holding Group Co. Ltd. announced that they have reached an agreement on all major commercial terms related to the deal.

That news boosted Ford's stock price past $10 per share for the first time in more than four years. Shares of Ford stock closed at $10.08, 18 cents higher than Tuesday.

"It's good for Ford because they've never made any money off of Volvo," said John Wolkonowicz, senior analyst for IHS Global Insight. "This gets that millstone off of their neck."

Ford said it expects to sign an agreement by March 31 and complete the sale before June 30.

Geely must still obtain financing and regulatory approvals but company spokesman Tim Burt said Ford's announcement was designed to help Geely clear those hurdles.

"The lenders of Geely wanted a degree of comfort," Burt said.

Standard & Poor's equity research analyst Efraim Levy said the sale of Volvo will help Ford concentrate on its three core brands -- Ford, Lincoln and Mercury.

"They get the cash from the sale and they don't have to invest in Volvo," Levy said.

Levy downgraded Ford's rating from hold to sell on Wednesday but said he took that action because he views Ford's stock as overvalued at any price above $9 per share.

Ford first said it would consider selling Volvo in December 2008. While other buyers have expressed interest in Volvo, Ford named Geely as its preferred bidder in October. Ford's total automotive debt stood at $23.8 billion as of Sept. 30, and Ford President and CEO Alan Mulally has said that Ford needs to reduce its debt burden.

While Volvo gained market share during the third quarter, Ford has lost millions on the automaker since acquiring the company for $6.4 billion in 1999 and is expected to get between $1.8 billion and $2 billion from the sale.

"It's going to be a pittance compared to what they paid for it and what they spent after that," Wolkonowicz said. "It's not about the money they are getting, it is about getting rid of it."

In contrast, General Motors Co.'s talks with Koenigsegg Automotive AB and Spyker Cars to sell Saab Automobile AB collapsed.