AB Volvo will acquire a 45-percent stake in China’s Dongfeng Commercial Vehicles (DFCV), manufacturers of medium- and heavy-duty commercial vehicles. The deal will make the Volvo Group the world’s largest manufacturer of heavy-duty trucks, Volvo says. DFCV is part of Dongfeng Motor Group (DMG), the largest heavy- and medium-duty building in China, according to Volvo.
“This is a very exciting venture that will combine the best of two worlds, strengthening the positions of the Volvo Group and Dongfeng and offering excellent opportunities to both parties,” says Volvo president/ CEO Olof Persson. “Combining Dongfeng’s strong domestic position and know-how with the Volvo Group’s technological expertise and global presence will offer DFCV excellent potential for growth and profitability in and outside China.”
Completion of the transaction is subject to certain conditions, including the approval of relevant anti-trust agencies and Chinese authorities. The purchase consideration amounts to RMB 5.6 billion. The ambition is to complete the transaction as soon as possible and completion is expected to take place within approximately 12 months from today.
The transaction with DFG follows the recent agreement between DFG and Nissan Motors, in which DFG purchased the medium- and heavy-duty commercial vehicle operation from the joint venture DFL (owned jointly by DFG and Nissan Motors). The major part of the re-purchased commercial vehicle operation will be included in the new company, Dongfeng Commercial Vehicles (DFCV).
In 2011, DFCV reported net sales of approximately RMB 39 billion (pro forma) and operating income of approximately RMB 1.2 billion (pro forma). DFCV has approximately 28,000 employees and sold 142,000 heavy-duty trucks and 49,000 medium-duty trucks in 2011 (pro forma).
For the first three quarters of 2012, DFCV’s net sales amounted to approximately RMB 22 billion (pro forma) and operating income to approximately RMB 0.3 billion (pro forma). During the same period, 81,000 heavy-duty trucks and 35,000 medium-duty trucks were sold by DFCV (pro forma). At the end of the third quarter of 2012, DFCV had net financial debt of approximately RMB 500 million (pro forma). The AB Volvo holding in DFCV is expected to be reported as an associated company and consolidated in accordance with the equity method, one-line consolidation, within the Trucks segment.
“China is the world’s largest truck market with a total market for heavy trucks equivalent to the European and North American markets combined,” says Persson. “The partnership between the Volvo Group and DFG will strengthen DFCV’s already strong position in China and provide the company with the right conditions for successful international expansion.”
The partnership with DFG also offers excellent opportunities to achieve economies of scale in terms of sourcing, development and production for the Group’s truck operations. There are a number of areas in which cooperation is planned between DFCV and Volvo, such as engines and powertrain components, product platforms and purchasing.
“In Dongfeng, we have a partner that we know well, having worked together for several years, and with a management team and a product range that we really appreciate,” says Persson. “Joining forces will provide clear benefits for both parties and the right conditions to develop DFCV into a competitive and successful international truck manufacturer with healthy profitability.”
The DFCV management team will consist of eight members, with Volvo nominating four of the eight members and Dongfeng the remaining four. Dongfeng will nominate the company’s Managing Director, while Volvo will be responsible for nominating the Chief Financial Officer. The Board of DFCV will comprise seven board members and it has been agreed that the Volvo Group will account for three places and DFG four.
Source: Volvo Group