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Guangzhou Auto buys Changfeng stake

GUANGZHOU Automobile Group yesterday agreed to buy 29 percent of Hunan Changfeng Motor Co as part of an industrial restructuring that the central government is encouraging to create auto powerhouses.

After buying 151 million shares from Changfeng's parent, Guangzhou Auto would become the largest shareholder of Changfeng, the nation's biggest sport-utility vehicle maker, the two companies said yesterday.

Based on the closing price of 11.09 yuan (US$1.62) for Changfeng before it suspended trading on Tuesday, the deal is likely to be worth US$245 million.

In the new Guangqi Changfeng Automobile Co, state-owned Changfeng Group will own 22 percent while Japan's Mitsubishi Motors Corp will continue to hold 14.6 percent. Chen Zhengchu, general manager of Changfeng Motor, said it is possible that Guangzhou Auto may raise its shareholding in the future.

Analysts said the deal creates a winning situation for both car makers as their product line-ups are highly complementary and a bigger business scale will benefit both parties.

"Guangzhou Auto will have its long-desired SUV platform and expand production while the listed unit of Changfeng is also a great attraction to raise funds in future," said Jia Xinguang, an independent industrial analyst. "The equity tie-up enables Changfeng to make more passenger cars and to boost profitability."

Guangzhou Auto, the Chinese partner of Toyota Motor Corp and Honda Motor Corp, also said it will invest 10 billion yuan in Hunan Province with Changfeng Group over the next five years. It will boost capacity to 500,000 units per year and targets an annual profit of 5 billion yuan and 40 billion yuan in revenue.

The deal is the first after the central government last month encouraged consolidation to create bigger auto groups.


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