Geely To Rescue Aston Martin? You Might Actually See Pigs Flying For Once
Debt-ridden Aston Martin’s self-inflicted profits warning wound (partly a result of executives rewarding themselves millions in bonuses then blaming it all on “economic uncertainties”) may well have a hero on the horizon with a rescue plan. Geely. The Chinese automotive giant is considering tabling an offer for the distressed 107-year-old maker of luxury supercars. Reports are circulating that Geely is currently conducting due diligence, which means they are looking at Aston Martin’s accounts.
Hopefull Geely will not find any irregularities between the official accounts and the internal accounts. Due diligence is usually a serious sign of intent and an indication the two companies have been talking for some time about a strategic investment or possible buy out. The odds are that Geely will take a significant shareholding with the view of a full take over in the not so distant future.
Geely has a growing appetite for European auto manufacturers, the company owns Volvo and recently bought British sports car manufacturer Lotus. Aston Martin was bruised by poor trading during 2019 and last week issued a profit warning. The company has lost nearly 70 percent of its stock market value since it listed on 3, October 2018.
Today financial analysts regard Aston Martin shares to be near junk status as the company flounders despite growing sales, although lately, those growing sales have been stunted. Weak profits have forced Aston Martin to borrow money. The borrowing interest rates are high because banks consider Aston Martin an even higher risk.
Ten years ago the company could barely sell 2,000 vehicles per year. Today Aston Martin sells just over 5,000 vehicles annually. But it isn’t enough. Aston Martin was predicting over 7,000 sales for 2019 the markets hate it when goals are missed, or potentially and quite possibly deliberately overstated for short term gains.
Aston Martin has change hands many times over the course of its history. From private owners to industrial giants. The company was once part of the Ford empire and when it was sold off it fell into the hands of venture capitalists.
A company like Aston Martin requires a mothership to lead it just in case it is at risk of sinking. Venture capitalists will often load a company with debt and run when they have exhausted the “free” money and left the debt with the company. However, Mercedes Benz parent company, Daimler, owns 5 percent of Aston Martin.
But whether Geely opts to buy a small stake-holding or an out-right purchase remains unclear. If we go by Geely’s previous acquisitions of Volvo and Lotus then they often go for outright ownership. So I am predicting Aston Martin will be fully purchased by Geely. But expect the due diligence and talks to be protracted for some time.