FRANKFURT: Daimler AG’s Chinese partner BAIC Motor Corp is set to buy a 5% stake in the Mercedes-Benz maker to cement industrial ties between the two automotive companies.
BAIC, backed by the Beijing municipal government, has acquired 2.48% holding and the right to buy an additional 2.52% stake, Daimler said. As of Monday’s market close, the stakes have a combined valuation of 2.5 billion euros (US$2.8bil).
Together with Daimler’s biggest shareholder – Zhejiang Geely Holding Group Co’s billionaire owner Li Shufu – the transactions would take the level of Chinese ownership in the world’s biggest luxury carmaker to 14.7%.
Daimler’s shares rose 0.9% in early Frankfurt trading yesterday, after declining 15% over the past year. The company has come under pressure from four profit warnings in just over 12 months after markets weakened and the carmaker increased provisions for charges including for fallout from investigations into alleged tampering of diesel emissions in its vehicles.
BAIC’s transaction might pave the way toward Daimler lifting its stake in the joint venture in China after restrictions for foreign investors in the world’s largest auto market eased.
But a state-backed Chinese shareholder at one of Germany’s industrial icons could stir concerns about influence amid a raging trade war. China and the US are the two largest markets for Daimler’s main Mercedes-Benz cars unit, the world’s bestselling luxury-car maker.
“It has been our intention to strengthen our alliance with Daimler through an investment,” said Heyi Xu, chairman of BAIC. “This step reinforces our alignment with, and strong support for, Daimler’s management and strategy.”
For BAIC, maintaining ties with Daimler is strategically important as its joint venture with Hyundai Motor Co has been struggling and its own domestic brands are burning cash as the trade spat with the US is weighing on demand for new vehicles.
“Run by politically-minded management, BAIC is comfortably the lowest quality company under our coverage,” Sanford Bernstein analyst Robin Zhu said in a recent note to clients. With growth slowing and margins squeezed “we’d expect the company’s problems to look increasingly exposed,” he said.
Daimler is exploring additional cooperation projects with Geely, former chief executive officer Dieter Zetsche said at the company’s AGM in May and sought to allay concerns about potential conflicts with BAIC. — Bloomberg