(Original title: Depth: Rapid delisting, US delisting, or a step in Geely’s grand integration strategy? )
[Industry in car home] On May 7th, Geely announced that it planned to buy all the shares of Krypton, a subsidiary listed in the US stock market, and privatize it at a premium of 20% on the average price of the past 30 trading days. If the transaction is completed, Krypton will be completely delisted from the US stock market, and Krypton will be completely merged with Geely Automobile to become a wholly-owned subsidiary.
Hearing the news, the first reaction of the internal staff is: very sudden, very stupid.
In May, 2024, Krypton went public only three years after its establishment, becoming the fourth new force to go public in the United States after Wei Xiaoli. It was listed less than a year ago, and now it is announced to withdraw from the market immediately. The delisting speed is as fast as the listing. What happened? This paper tries to interpret it in depth.
Members of the United States named 25 China companies for delisting, including Krypton, but not Lotus.
In the context of Sino-US trade confrontation, in addition to tariffs, financial war is also one of the options at the negotiating table.
On May 2nd, Republican Congressman John Moolenaar, Chairman of the US-China Special Committee on Strategic Competition, and Rick Scott, Chairman of the Senate Committee on Aging, and others jointly wrote to the SEC, demanding that 25 China companies listed in the US suspend trading and withdraw from the market.
We read the original text of the letter. Among the 25 listed companies named by Members, there are three related companies in the smart car industry, including Krypton, Tucki and Xiaoma Zhixing.
Krypton is on the list of 25 listed companies that call for delisting.
The reasons for the withdrawal of Krypton from the market described by US Members are summarized as follows:
1. Polar Krypton has been integrated into China’s civil and military system by using the "Future Travel Constellation" satellite network developed and built by Geely, which supports real-time tracking, remote sensing and safe communication of smart cars.
2. Geely has equipped the Krypton car with direct satellite connection without ground network, connecting the daily electric car function with the space infrastructure controlled by China military for a long time.
3. Geely also provided more than 1,000 Borui cars to the China People’s Liberation Army, promoting that "military quality" is suitable for harsh environment, which proves that Krypton supports integration of defense and civilian technologies.
4. Krypton has a Communist Party organization in the company, and the intelligent workshop provides a training and publicity base for CPC ideological education, vocational training and school-enterprise integration;
5. Krypton partly owns Zhejiang Times Geely Power Battery Co., Ltd., which is jointly held by Contemporary Amperex Technology Co., Limited, and Contemporary Amperex Technology Co., Limited is included in the list of entities in the Xinjiang Uygur Forced Labor Prevention Act.
The screenshot of the original letter is as follows:
Original screenshot
As mentioned in the letter, these 25 companies pose great risks to the national security and capital market of the United States.
Geely’s other listed car companies, such as Lotus and Polar Star, are not on this list, and there is no news of simultaneous delisting recently. In 2017, Lotus acquired by Geely was listed and traded in the United States in February 2024 by merging with a special purpose acquisition company.
Geely’s official reply: integrate resources and return to a Geely.
Li Shufu, chairman of Geely Holding, said in this statement that in the face of fierce market competition and increasingly complex economic environment, Geely Holding will judge the situation and continue to promote the integration of automobile business in accordance with the spirit of Taizhou Declaration, return to a Geely, integrate technological advantages, and improve innovation and profitability.
Finally, don’t forget to mention: Geely Holding will still maintain close communication and cooperation with American and international capital markets.
This acquisition shows Li Shufu’s skillful capital market operation means.
First, the price of $25.66 for this acquisition of Geely is 20% higher than the average transaction price in the past 30 days and 22% higher than the listing price of $21. A better premium acquisition can avoid lawsuits from minority shareholders.
Second, Geely sent a "Non-binding Offer Letter" to Krypton, which means that the preliminary letter of intent given by the buyer to the acquired party is not legally binding and does not represent the final negotiation price. Only when Krypton agrees, the transaction can be carried out.
There is a guess that if the market speculates on Krypton’s share price for a short time and exceeds the purchase price of $25.66, Geely may give up the acquisition. Immediately after the announcement, on May 7, the Krypton closed up 11.5% to $25.19.
Third, Geely does not buy and sell at a loss. The invitation letter for repurchase does not specify how long it will be implemented, and it will be valid for a long time. Geely will not buy back at the high point of the stock price, or wait until the stock price falls.
Krypton’s share price has been lower than the issue price for a long time, and its listed market value and current market value are hovering around 6 billion US dollars, which is lower than the 13 billion valuation expected by investors in the A round of financing, and also significantly lower than that of Wei Xiaoli. Tucki has exceeded 18 billion, and ideally it has exceeded 27 billion. The valuation has shrunk dramatically, and the US stock market environment has further deteriorated in recent years. At present, China Stock Exchange is also facing the risk of delisting under the political game, which makes investors nervous, and the refinancing space is getting smaller and smaller, losing the significance of listing.
The risk of delisting of China Stock Exchange will return again, and there is no second listing in Hong Kong at present and will not be in the future.
"The delisting of China Stock Exchange" is not a new topic. As early as Trump’s first term in 2021, the US Securities Regulatory Commission introduced the delisting regulations for China companies under the Foreign Company Accountability Act, which triggered a large number of China Stock Exchange companies including Alibaba, Xpeng Motors and Weilai Automobile to go to Hong Kong for secondary listing, thus realizing the listing in the United States and Hong Kong to avoid the delisting risk.
However, although the listing in the United States and Hong Kong has been realized and the risk of delisting has been eliminated, the trading volume provided by the Hong Kong stock market is far less than that of the US market. For example, the average daily ADR trading volume of Alibaba and JD.COM in US stocks is about 80% higher than that of their Hong Kong stocks.
The trading volume provided by the Hong Kong stock market is much smaller than that of the US market.
With the escalation of geopolitical tensions between the United States and China, if all ADR stocks in China are delisted from the American stock exchange at the same time, the entire China stock market will be at risk of downward valuation.
From the perspective of capital market, compared with Tucki and Weilai Automobile, Krypton has not been listed in Hong Kong for the second time, and its investors are at risk of delisting. Even if we return to the Hong Kong stock market, not to mention that the valuation is greatly discounted compared with the US stock market, mainly because Geely Automobile itself is also listed on the Hong Kong stock market, and re-listing will form horizontal competition. If you can’t go public twice, then delisting is a better choice.
To reach the top in 2017, it is necessary to benchmark the Volkswagen Group and make a global layout.
In 2010, Geely bought Volvo Cars for US$ 1.8 billion (about RMB 10.8 billion). For Geely, whose revenue at that time was only RMB 20 billion, the market described it as "snake swallowing elephant".
Volvo cars have brought thoroughly remoulded changes to Geely, and Volvo has made Geely really understand what automobile product development is all about. Subsequently, CMA, the modular architecture of mid-level cars, was introduced, and based on this, the new brand "Lingke" was launched, and Geely began to gradually get rid of the image of low-priced and cheap cars.
In 2017, Geely won the first place in the sales of self-owned brand car companies in China.
In 2017, Geely won the first place in the sales of China’s own brand car companies.
2020 "blue operation failed" 2021 began a new version of "blue operation": the birth of krypton.
Before 2020, Li Shufu recognized that electrification was the future trend, but did not think that it would immediately have a subversive and destructive impact on the industry.
Until the arrival of the epidemic, the country put forward the goal of "peak carbon dioxide emissions, carbon neutral", and Tesla achieved its first profit after its establishment. BYD has been deeply involved in the battery industry for many years, and once it ushered in a big outbreak, Geely also acquired traditional car companies around the world. Li Shufu’s misjudgment made Geely completely backward.
In 2021, Geely began to deploy a new version of the "Blue Plan". On the one hand, it established a new brand of electric vehicles, on the other hand, it did not give up the internal combustion engine and continued to study new power vehicles such as hybrid and extended range.
Krypton was established under this background.
In March, 2021, Krypton set up its own sub-brand independently from the interior of Lectra, focusing on the development of more than 300,000 high-end pure electric vehicles.
In 2023, Lectra announced that it would no longer produce fuel vehicles, and comprehensively transform new energy vehicles such as pure electricity and extended range, focusing on 200,000-300,000 vehicles.
In February 2023, Geely launched the new energy brand "Yinhe", and in 2024, it incorporated the geometry series, focusing on the low-end new energy market below 200,000.
In 2024, it was proposed that brands were too scattered, and inter-brand collaboration should be achieved.
Compared with BYD, the brands of Geely Holding Group are too scattered, and there is no single brand or model strong enough to compete with BYD. In January 2024, Geely first proposed to achieve synergy among many brands.
However, Geely’s internal brands have different origins and complex equity, which is fundamentally different from BYD and more difficult to coordinate. Coupled with the rising political risks in overseas markets, it has brought difficulties in operation and management. After Volvo’s acquisition for more than ten years, there are still internal communication problems. Geely began to sell the shares of its invested companies and shrink its layout.
In September 2024, the Taizhou Declaration was issued. Li Shufu mentioned that the Group should shift from strategic expansion to strategic focus and integration, shut down and transfer some businesses, adhere to steady operation and stop blindly expanding.
Summary and outlook
From the perspective of capital market, the refinancing space of Krypton in the US stock market with deteriorating environment is shrinking, and because Geely Automobile has been listed in Hong Kong, it is impossible to go to Hong Kong for a second listing, so delisting is a better choice.
From the internal strategy of the Group, the current sales performance of Krypton has not reached the target set at the time of listing. In the first quarter, it achieved the annual target of 12.18%, and Linke has achieved 19%. In addition, the debt ratio of Krypton is extremely high. Although the loss has narrowed, there is still a loss of 5.79 billion. In the fierce market competition, Li Shufu may hope to return to Geely as soon as possible, integrate resources and improve synergy.
The above may be several reasons for this sudden acquisition for reference and discussion. (car home graphic Wu Peizhe)
