Merger deal of auto firms due today

After eight months of negotiations, the much-anticipated merger between China's largest carmaker Shanghai Automotive Industry Corp (SAIC) and its smaller rival Nanjing Automobile Group is finally set to happen.

The Shanghai-based automaker will sign a final agreement today on the planned merger with Yuejin Motor Group, controlling shareholder of Nanjing Auto, the biggest M&A deal in China's auto industry in more than two decades.

The two companies will forge the partnership by swapping shares, with Nanjing Auto's complete vehicle assets to be injected into SAIC Motor Corp, the listed arm of SAIC, and the Nanjing carmaker's auto parts and trade businesses to be incorporated into SAIC.

Nanjing Auto will hold SAIC Motor Corp's stake, according to the Beijing Times newspaper. But how much share the Nanjing automaker will obtain from SAIC is still under wraps, with estimates ranging from 5 to 10 percent.

Nanjing Auto owns 2.6 billion yuan in net assets, including 28 subsidiaries, seven companies in which it has stakes and more than 400 affiliated enterprises. With an annual production capability of 200,000 motor vehicles, the carmaker has three complete vehicle plants for Nanjing MG, Nanjing-Fiat and Nanjing-Iveco.

After the deal, the SAIC-Nanjing Auto complex will become the country's biggest auto group in terms of assets, number of products and business scope.

The two parties, which rivaled in bidding for Britain's collapsed MG Rover Group two year ago, reached an initial agreement for the merger earlier this year.

After that SAIC sent representatives to Nanjing Auto's British plant as part of the due diligence process.

After the merger, a dual brand strategy will see Roewe, developed by SAIC using part of the intellectual property rights it acquired from Rover in 2004, positioned as a mid- to high-end brand. Meanwhile, MG will mainly target the lower segment of the market - similar to the positioning of Chrysler and Dodge.

(China Daily 12/26/2007 page15)