Analysis: Can Aston Martin work with new stakeholder Geely?

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Geely takes a stake in Aston Martin, but not exactly how it planned to

Previously rebuffed Geely is now an 8% stakeholder, but that doesn’t mean they will work together

Having been publicly rebuffed on its offer to invest in Aston Martin back in July, Geely has gone round the back by hoovering up shares on the open market to give it an almost 8% stake in the luxury firm

So what happens now? Aston Martin chairman Lawrence Stroll made it extremely clear on the company’s second-quarter earnings call in July that he thought Geely’s £1.3 billion bid together with Italy’s InvestIndustrial Group for a stake in the company was derisory.

“The board and its bankers studied it and unanimously completely rejected it. It was a camouflaged backdoor offer disguised as a rights issue,” he said. “So the banks actually laughed. They thought it was quite astonishing.” It would be safe to say that Geely isn’t Stroll’s favourite company, then.

And what about now? Geely went to the open market and bought shares, according to a source with knowledge of the situation. Or in other words, it was an unsolicited move to take a stake without Aston Martin’s blessing, which wasn’t exactly going to improve Stroll’s mood.

Stroll tersely acknowledged Geely’s purchase at the very end of a statement announcing the completion of the £654 million equity capital raise, of which £200m has already gone to paying down some of Aston Martin’s heavy debt burden. “Finally, I would like to welcome Geely Holding, who have today announced that they have become a shareholder,” Stroll said.

Geely’s statement was more fulsome about the possibilities that lie ahead between the two companies. “We believe that with our well-established track record and technology offerings, Geely Holding can contribute to Aston Martin’s future success,” said Daniel Donghui Li, Geely Holding Group CEO. “We look forward to exploring potential opportunities to engage and collaborate with Aston Martin.”

Geely’s move is on the surface very similar to the one that it engineered with Mercedes-Benz back in 2018, when Geely had announced that it had been buying shares in the German company on the open market to take its shareholding to just under 10%. The move spooked the German government so much that it noted it would remain “watchful” as to the Chinese company’s motives.

Geely however turned its Mercedes shareholding into a meaningful relationship with the company, culminating in it taking a 50% stake in the Smart brand and essentially moving it lock, stock and barrel to China.

Could Geely also bring Aston Martin on board? The British firm right now might not be the most receptive to overtures from a company that it sees as being an aggressor, but that might soften over time. Geely crucially has that link with Mercedes, which of course has its own stake in Aston Martin, now standing at 9.7% following the recent release of further shares.

Aston Martin has access to Mercedes technology under the deal, particularly the electric/electronic architecture that it called “critical” to the development of its next generation of cars in its recent share prospectus.

Geely, however, also has technology relevant to Aston Martin, particularly via its majority ownership of Lotus, which now has a luxury-angled EV platform that could be very helpful to Aston Martin as it works towards launching its first electric car in 2025.

While Mercedes has so far kept its distance from Aston Martin, Geely is clearly offering to be that parent with deep enough pockets to solve Aston Martin’s still critical financial shortfall.

“I can foresee a possible takeover down the line,” said David Bailey, professor of business economics at the Birmingham Business School. “I can’t see how Aston Martin can survive on its own in the long term”.

Geely now has to persuade Stroll that it’s working for the benefit of Aston Martin and its shareholders. With a 7.6% stake it might feel entitled to a non-executive directorship position, if Aston Martin apply the same rights given to the largest shareholders like Saudi Arabia’s Public Investment Fund (PIF), with its 18.7% stake, Yew Tree Overseas (14.2%) and Mercedes.

PIF for example is given two board seats, while Mercedes is handed a board seat plus one non-executive directorship if it keeps its stake above 7.5%. It could be that Geely’s 7.6% stake was arrived at with the express purpose of strengthening its hand in asking for that non-exec directorship, which would give it more of a say in the running of the company. Aston Martin however has made it clear that privileges like that only extend to ‘strategic partners’, which excludes Geely.

There’s no doubt that Geely was able to take advantage of the depressed price of both the pound and Aston Martin stock, which is currently running at around £1.25 per share, down from £19 when it listed back in 2019.

The 53 million voting rights that Geely now has, assuming one vote equals one share, might have cost it £66m at current prices. Although recent Aston Martin share purchases, including £16,480 worth by Net-a-Porter founder Natalie Massenet, were made at a discount of £1.03 per share, so it could have been cheaper still.

All this should be good news for UK automotive. Geely has shown itself so far to be a good custodian of both Lotus and taxi maker the London Electric Vehicle Company (LEVC), finding the right blend of local investment with Chinese expansion.

Whether Aston Martin will embrace its surprise new stakeholder, however, remains to be seen.

Source: Autocar

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