Daimler has changed the structure of its strategic partnership with Beijing Automotive Group (BAIC) ahead of an expected initial public offering of its passenger-car unit.
According to a person familiar with the deal, which was agreed on February 1, Daimler is going to invest Rmb5.13 billion ($820 million) for a 12% stake in BAIC Motor. It is the first time that a non-Chinese car company has taken a stake in a Chinese original equipment manufacturer.
Daimler’s investment will take place through the issuance of new shares. Concurrently, Daimler will reduce its stake in the production joint venture Beijing Benz Automotive Company (BBAC) by 1% to 49%, passing majority control to BAIC, one of the leading auto companies in China, which will consolidate the joint venture ahead of the IPO.
At the same time, Daimler will increase its stake in the integrated sales joint venture, Beijing Mercedes-Benz Sales Service, by 1% to 51%.
The agreement, which should close either late this year or the start of 2014, subject to regulatory approvals, will also give Daimler two seats on BAIC’s board of directors.
Part of the rationale for Daimler is that it will achieve closer ties with BAIC and demonstrate long-term commitment. Regulatory restrictions had prevented the company from exercising much influence on the joint venture.
“Following our technical cooperation with BAIC Motor and the setup of our integrated sales company, we are now taking the next step in deepening our relationship even further,” said Dieter Zetsche, Daimler’s chairman, in a statement on Friday. “Our investment is a strong sign of the increased level of trust and cooperation between our two companies, and clearly emphasises the long-term commitment to a joint successful future of our two companies. It is also significant so that both companies can actively participate in the opportunities of the Chinese automotive market.”
Meanwhile, BAIC should benefit from Daimler’s technical know-how.
“The partnership between BAIC and Daimler has entered into its best phase ever, with further deepened cooperation in accordance with the mutual interests and development plans between both companies,” said Xu Heyi, chairman of BAIC, in the same statement. “Daimler’s investment in BAIC’s stake will go a long way in accelerating the development of BAIC’s self-owned brand in terms of capital, technology, management and brand.”
As one of China’s biggest automakers, BAIC Group sold more than 1.5 million vehicles in 2011. China is already the fifth-biggest sales market for Mercedes-Benz trucks and last year the car division sold around 210,000 vehicles.
Joint activities include BBAC, which has been producing Mercedes-Benz passenger cars since 2006, Beijing Foton Daimler Automotive (BFDA), which has been jointly manufacturing Auman-branded medium- and heavy-duty trucks since mid-2012, and most recently, the establishment of Beijing Mercedes-Benz Sales Service.
J.P. Morgan advised Daimler and BAIC was advised by Morgan Stanley.
