Manganese Bronze Holdings has signed heads of terms with Chinese car manufacturer Zhejiang Geely Holding Group (Geely) to establish a joint venture company to produce the London ‘black cab’ taxi in Shanghai.
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The agreement, which is not legally binding, establishes the intention of producing definitive legally binding agreements within the next few weeks. Total investment in the joint venture is forecast at £53m of which Manganese Bronze’s share is £19.85m.
The investment will cover the purchase of land (£9.0m) intellectual property (£5.6m) and fund construction and factory fit-out.
Final assembly and sales will be undertaken by Shanghai Maple, a Geely subsidiary, which will have the right to sell these vehicles within Asia, while Manganese Bronze will have the right to sell them in the rest of the world.
Manganese Bronze will satisfy its investment by licensing its intellectual property rights valued for the joint venture at £5.6m and issuing 5.7m new ordinary shares to Geely (representing 23.0% of Manganese Bronze’s enlarged issued ordinary share capital) based on a valuation of £2.50 a share (with £14.25 million being invested by Geely in the joint venture). The valuation is based on the share price when this transaction was initially negotiated and represents the average share price for the last six months. The shares and intellectual property secure an initial stake of 37.6% in the joint venture.
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By GlobalDataGeely will fund the joint venture total cash investment of £38.4m, with Shanghai Maple providing the land valued at £9.0m, which combined secure a 62.4% stake in the joint venture. Manganese Bronze has the right to purchase shares in the joint venture from Geely for £6.6m to increase its stake to 50% at any time over the next five years.
Manganese Bronze has been pursuing a strategy of controlled international expansion following the divestiture of its loss making components division. The group has been seeking a manufacturing partner in China in order to develop a low cost manufacturing facility and to gain access to a country with a growing vehicle market. Following extensive talks, Geely stood out as one of the most respected automobile companies in China and the prime partner for a joint venture.
Geely entered automobile manufacturing in 1996 and has rapidly grown as the key brand for low cost vehicles in China. It now has an annual production capacity of 250,000 vehicles, 200,000 engines and 150,000 gearboxes from four separate manufacturing bases.
The intended capacity of the joint venture facility will be 20,000 vehicles, with production planned to commence in mid 2008. The cost of producing the London taxi in China is expected to be significantly lower than in the UK due to higher volumes and purchase of components from Geely’s current low cost suppliers. The joint venture will provide Manganese Bronze with a low cost manufacturing base which should increase appeal to new markets outside China and allow rapid access to the large and fast growing Chinese vehicle market.
