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Ford Agrees to Buy Volvo's
Passenger-Vehicle Business

Associated Press
DEARBORN, Mich. — Ford Motor Co. is buying the passenger car division of Sweden's Volvo AB for $6.45 billion, adding another premium brand name to the portfolio of the world's No. 2 automaker.

Photo
Carlos Osorio/AP
Ford Chairman William Clay Ford Jr. and Jac Nasser, Ford's president and chief executive officer

Under the agreement announced today, Ford is expected to assume ownership of Volvo Cars' worldwide sites, including three assembly plants and two powertrain plants in Europe and the passenger-vehicle product development center in Gothenburg, Sweden.

Ford also gets the right to use the Volvo brand for passenger cars, minivans, sport utility vehicles and light trucks. Volvo retains its corporate brand for commercial vehicles and non-automotive products.

The deal is subject to approval by regulators and stockholders.

Ford is no stranger to Sweden, where the U.S. automaker has been operating since 1924 and now sells passenger and commercial vehicles through an 87-dealer network.

"We are not just in Sweden, we are part of Sweden," Jac Nasser, Ford's president and chief executive officer, said this morning. "And through our new relationship with Volvo, we plan to be part of the fabric of the country for many years to come."

Volvo said the sale would allow the company to concentrate on its other operations, including commercial vehicles and interests such as construction equipment, marine engines and aerospace equipment.

It also said being part of a "very large automotive company" would allow it to invest more in development and distribution.

"Now, Volvo can concentrate its resources towards becoming a world leading producer of commercial products," said Volvo president Leif Johansson, according to the Swedish news agency TT.

Photo

The merger is complementary for both companies, said analyst Gregory Kagay, of McDonald & Co., in Birmingham, Mich.

"This is sort of like a whale swallowing a guppy," Kagay said. "The implications for the industry are not overwhelming."

But some analysts had questions about the deal. Nick Colas, with Credit Suisse First Boston in New York, said, "it's an interesting acquisition but an over the top price. ... It exceeds the financial value of Volvo," by $3 billion, by his company's estimate.

Volvo has been one of several auto companies considering mergers or acquisitions since last year's merger of Chrysler Corp. and Daimler-Benz AG. Italy's Fiat SpA and Germany's Volkswagen AG had reportedly expressed interest in Volvo, but recent speculation had focused on Fiat and Ford.

Business Week magazine reported Wednesday that Ford's offer won out over a $7 billion bid by Fiat SpA, which also wanted to purchase Volvo's commercial truck business. Ford has nearly $24 billion in cash, Fiat just a $1.5 billion reserve.

Fiat said today it only wanted to buy the entire company.

"The acquisition of just the car sector wasn't in our strategic interests and therefore was never part of our negotiations," the company said in a release.

Acquiring Volvo will allow Ford to expand its 10 percent share of the European market by offering a broader line of near-luxury sedans and station wagons. Volvo would also help Ford in its effort to market itself as a leader in automotive safety.

"Volvo has a world-class reputation for safety, quality, durability and environmental responsibility — all of which are attributes that are increasingly important to our customers," Nasser said.

Ford already owns Britain's Jaguar Cars Ltd., whose cars are priced well above Volvo's. Ford's European cars, meanwhile, are priced below Volvo's.

"The interesting thing is there's so little overlap, even with Jaguar," said analyst Joe Phillippi of Lehman Brothers. "Volvo prices end way before Jaguar prices start, so that's not really an issue. In Europe, it helps them enormously."

Ford earned $22 billion last year, more than triple the $6.9 billion it earned in 1997.

Volvo, one of the world's smaller automakers, produces fewer than 500,000 vehicles annually. Last year it sold 400,000 cars, 100,200 of them in the United States. Sweden was its second-largest market, with 53,600 cars sold.

This isn't the first time Volvo has been involved in merger discussions.

Stockholders blocked a proposed merger with Renault SA of France in 1993. Opponents, mostly small shareholders in Sweden and mid-level managers, were worried about control of Volvo and jobs moving outside Sweden, where manufacturing costs are high.

That may be less of a concern with Ford as an owner, based on the way the automaker has handled its acquisition of Jaguar, keeping it as a largely separate entity based in England.

"Ford is the best partner that has been mentioned in the discussions," said Christer Karlsson, a Stockholm School of Economics professor.

"It would be a disaster if they Americanized Volvo, but I'm sure that they don't want to damage the trademark, but rather strengthen it," he said. "Ford has let Jaguar stay an English car."

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