The Strategist

Chinese billionaire buys Daimler

02/27/2018 - 11:55

Li Shufu, a billionaire from the Chinese city of Hangzhou bought almost a tenth of Mercedes company. This news excites now not only the German automaker Daimler, who has got a new strategic investor, who concentrated in his hands the largest stake in the concern. The multi-billion investment of the founder of the Chinese company Geely and the owner of the Swedish Volvo can change the alignment of forces in the global automotive industry and lead to new alliances. Yet, the deal is fraught with serious conflicts of interest.

Donnawetta via pixabay
Donnawetta via pixabay
The very arrival of the Chinese investor did not become a big surprise. However, the scale of the investment was unexpectedly large. On Friday evening, February 23, after the close of trading on the Frankfurt Stock Exchange, Geely announced that it acquired 9.69 percent of Daimler's shares. The market capitalization of the German giant is about 75 billion euros. Thus, the company controlled by 55-year-old Li Shufu forked out about 7.3 billion euros in total.

Daimler’s capital is dispersed among 900 thousand shareholders, as its papers are rather popular among small investors. As a result, the concern has virtually no strategic investors. So far, the sovereign share fund of Kuwait was the owner of the largest shareholding of 6.8 percent. Now Li Shufu has overtaken the Kuwaitis. As the most important co-owner, he has the right to claim for himself or his representative for a place on the supervisory board of the German concern. There, he will be able to directly participate in the adoption of key investment and personnel decisions.

The German concern, in a rather restrained tone, announced that it was glad to see another "long-term investor convinced of innovation, strategy and potential" of the company. "Daimler," an official message to investors says further, "knows and appreciates Li Shufu as a Chinese entrepreneur with special competence and orientation to the future, with which it is possible to constructively discuss industrial transformations." This phrase indicates that the headquarters in Stuttgart are well aware of what the owner of Geely came for.

Li Shufu, who is often called "Chinese Henry Ford" in his homeland, came not for popularity or glamor of the brand. He is interested in the technologies for the production of electric cars and batteries for them. He would like to "accompany Daimler on the road to becoming one of the leading companies in the field of electric mobility," said the Chinese entrepreneur.

Thus, the founder of the company Geely, which has been producing cars since 1998, intends to promote the forced reorientation of Daimler for the production of electric vehicles. The Swedish company Volvo Cars, which Li Shufu acquired in 2010, has already announced the transition to the production of cars solely with electric or hybrid engines starting from 2019. It becomes obvious that the Chinese billionaire is aiming at one point.

The new Chinese co-owner of the famous German concern caused a mixed reaction in Germany. A well-known expert in the field of automotive engineering, Professor Ferdinand Dudenhöffer, is optimistic about the deal and is convinced that Daimler "will become even stronger and even more innovative." Another eminent expert, Professor Willi Diez, believes that the concern is now better protected from the threat of hostile takeover.

On the other hand, some believe that the arrival of the Chinese investor is an attempt of a hostile takeover. According to Handelsblatt newspaper, the management of the German concern is very concerned about the possible appearance of Li Shufu in the company’s supervisory board - in particular, because the Chinese entrepreneur simultaneously owns Volvo Cars and is the largest shareholder in Volvo Trucks. These are two direct competitors of Daimler in the markets of cars and trucks, respectively.

There is a clear conflict of interest, because the meetings of the supervisory board discuss the secret plans for the development of the concern and details of the development of new models. Another conflict of interest is that Daimler already has a proven partner in China since 2003, with which, in particular, it is planned to launch a whole range of electric vehicles in 2019. In addition, the German concern cooperates with the production of electric vehicles with the Chinese company BYD. However, analysts at NordLB believe that the third Chinese partner in the person of Geely won’t do any harm to the manufacturer of Mercedes and Smart cars.

German trade unions point out that the arrival of Geely to the Swedish colleagues at Volvo plants clearly benefited them. Therefore they are rather optimistic about the new shareholder, although they promise to closely monitor the safety of jobs in Germany. The government of Germany, in turn, declares that it welcomes private foreign investment in principle, if the rules are observed and there is no danger of abuse in the interests of other states.

At the same time, Economy Minister Brigitte Zypries promised to find out how it happened that Geely announced the purchase of almost 10 percent of shares at once, while the current laws require that the 3 percent threshold be overcome first, and the next mark is 5 percent.

To clarify his intentions and emphasize his good will, Li Shufu, according to German media, arrived in Germany and on February 26 he held talks at the Stuttgart headquarters of Daimler, after which he intends to meet with representatives of the government in Berlin on February 27.