Geely’s agressive moves to access German sensitive high technology underscores a broader Chinese strategy of one-sided trade: attempts by German companies to gain full control over Chinese companies have repeatedly come to nought since it remains prohibited.
China’s Geely’s purchase of a $9 billion stake in Daimler, which owns the Mercedes brand, has
rekindled fears in Germany over its highly-prized expertise falling into Chinese hands.
Although Brigitte Zypries, Germany’s economy minister, stuck to Berlin’s position that the matter surrounding Geely’s stake in Daimler was a business matter, she however underscored the fact that
Germany will not tolerate other countries exploiting its openness.
Geely, which owns Swedish carmaker Volvo, is pushing Daimler for access to know-how in electric and autonomous cars.
Tomorrow, on Wednesday February 28, 2018, a German parliamentary committee will question government officials on whether Geely has violated disclosure rules as well as whether loopholes in securities trading law need to be plugged, stated the Stuttgarter Nachrichten and the Stuttgarter Zeitung, two German news dailies.
In 2017, Germany was the first country in the European Union to tighten its rules on foreign takeovers following a series of deals which saw China gain access to German high-technology know-how.
Significantly, the attempt by German companies to gain full control over its Chinese rivals remains prohibited.
Under German law, the government can intervene if a threshold of 25% is exceeded, while investors must abide by market rules, said Zypries in interviews with Stuttgarter Zeitung and Handelsblatt newspaper.
Bafin, a financial and markets regulator, which overseas the proper disclosure of stakes, is now investigating whether Geely is found wanting in any disclosure rules, which can result in fines of 10 million euros or more.
Geely’s Stealth tactics
In November 2017, Geely approached Daimler and asked it to issue shares so that it could buy shares, get access to Daimler’s battery technology, and set up an electric car joint venture in Wuhan, China.
Daimler had reservations about the new alliance for fear of alienating its existing Chinese joint venture partner BAIC, said a source familiar with the carmaker’s thinking.
“Daimler has already rejected Geely’s overtures once, and Daimler execs we spoke with argue it’s simply not clear what Geely could offer Mercedes,” said Robin Zhu, an analyst with Bernstein Research in a note.
As per sources familiar with the matter, Geely responded to the rejection by enlisting Dirk Notheis, former CEO of Morgan Stanley in Germany and Yi Bao, former CEO of Morgan Stanley Huaxin Securities.
Both then devised a way for Geely to build a significant stake in Daimler using aggressive takeover tactics which German regulators had sought to quash.
Geely also worked with Bank of America Merrill Lynch, which declined to comment on Monday, to help secure a 9.69% voting stake using derivatives to help skirt disclosure requirements, said 2 sources familiar with the deal.
Although executives at Mercedes-Benz in Stuttgart were at first caught off guard by the approach, they nonetheless welcomed Geely in meetings on Monday to see how to “constructively discuss” industry changes.
Signs of trouble
The first signs of the wider ramifications from Geely’s move arose when Volvo Trucks dropped the CEO of Geely’s Volvo Cars from its board on Monday, citing competition concerns with rival Daimler.
In the wake of increasing Chinese aggression, trade ministers from the European Union are set to meet this week to discuss a range of issues including how to better protect the strategic assets of European companies from unwanted investors.