Volvo the automaker may have had some difficulty finding its footing over the past few years since leaving Ford ownership, but it's finding its way with an ambitious new product portfolio and new technologies funded by its new patrons at Geely. All the while, though, the Volvo truck company of which it was once part has been steadily growing. Today the group encompasses the former truck divisions of both Volvo, Nissan and Renault, as well as Mack trucks, Prevost and Nova buses and the Volvo Penta marine and industrial engines operation. And now it's adding one more company to its growing portfolio.

That would be Dongfeng Commercial Vehicles, the truck division of one of China's biggest automakers. The acquisition runs in the opposite direction of the group's former automobile division, which was acquired by rival Chinese automaker Geely in 2010. Volvo Cars was part of the Volvo Group until Ford bought it in 1999, holding the Swedish automaker under its umbrella for over a decade until disbanding the Premier Automotive Group that also encompassed Aston Martin, Jaguar, Land Rover and Lincoln.

Following the necessary approvals from the Chinese government, the Volvo Group purchased 45 percent of Dongfeng Commercial for 5.5 billion Chinese yuan, equivalent to $885 million at today's exchange rates. The Volvo Group also incorporates Indian truckmaker Eicher, Chinese construction equipment manufacturer SDLG and Japan's UD Trucks. Through UD (formerly Nissan's truck division), the Volvo Group already had a joint venture with its new Chinese partner called Dongfeng Nissan-Diesel Company, and Dongfeng is also sponsoring a boat in the Volvo Ocean Race, so you know the companies were already familiar with one another.
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VOLVO COMPLETES ACQUISITION OF 45% OF DONGFENG COMMERCIAL VEHICLES
06/01/15

AB Volvo has completed the acquisition of 45% of the Chinese automotive manufacturer, Dongfeng Commercial Vehicles Co., Ltd. The purchase consideration amounted to RMB 5.5 billion.

As announced earlier, AB Volvo signed an agreement in January 2013 with the Chinese automotive manufacturer, Dongfeng Motor Group Company Limited (DFG), to acquire 45% of a subsidiary of DFG, Dongfeng Commercial Vehicles Co., Ltd (DFCV). DFCV includes most of Dongfeng's operations in heavy-duty and medium-duty commercial vehicles.

To implement the transaction, a number of conditions had to be fulfilled, including approval from the Chinese competition authority and other relevant authorities. All approvals have been received.

This transaction will significantly strengthen the Volvo Group's position in medium-duty trucks while the Group will become one of the world's largest manufacturers of both medium-duty and heavy-duty trucks.

"This strategic alliance is a real milestone and entails a fundamental change in the Volvo Group's opportunities in the Chinese truck market, which is the largest in the world," says Volvo's President and CEO, Olof Persson. "At the same time, it will provide us with the opportunity to become involved in growing DFCV's international business in a manner that will benefit us and our Chinese partner."

In 2013, DFCV's pro-forma sales amounted to RMB 35 billion (SEK 37 billion) and the pro-forma operating income to RMB 950 million (SEK 1 billion). The total Chinese market for heavy-duty trucks amounted to about 774,000 vehicles in 2013, while the corresponding figure for the medium-duty truck market was 286,000 vehicles. DFCV had a leading position in both the heavy-duty and medium-duty segments, with sales of 120,600 heavy-duty trucks and 51,000 medium-duty trucks, corresponding to market shares of 15.6 and 17.8%, respectively.

During the first three quarters of 2014, DFCV's sales amounted to RMB 26 billion (SEK 28 billion) and the operating profit to RMB 1.1 billion (SEK 1.2 billion). During the same period, DFCV sold 85,000 heavy-duty and 31,000 medium-duty trucks. On September 30, 2014, DFCV had a net financial asset of RMB 3 billion (SEK 3.6 billion). (2014 un-audited)

AB Volvo's ownership in DFCV is expected to be recognized as an associated company and will be consolidated as of January 2015 according to the equity method and reported in the trucks segment. The payment of the purchase consideration will impact the Group's cash flow and net financial debt in the first quarter of 2015 by approximately SEK 7 billion. However, as the purchase consideration has been hedged, the nett amount paid for the ownership in DFCV is approximately SEK 5.6 billion.


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