GM Finally Inks Deal to Sell Hummer
By Brendan Moore
GM is selling their Hummer brand to China’s Tengzhong Heavy Industrial Machinery Co. for $150 million USD, according to a press release sent out today by GM. Tengzhong is purchasing Hummer through an investment entity, in which it has an 80% stake. The remaining 20% is controlled by Li Yan, a 46-year-old entrepreneur and chairman of Sichuan-based Lumena Resources Corp., who sources close to the deal describe as the main proponent of the acquisition.
The deal has symbolic importance that far outstrips its monetary importance, in that it represents the first purchase of an established automotive brand by a Chinese concern.
Hummer’s new Chinese owners intend to make the manufacturer of pickup trucks and SUVs a more international company, with factory sales expected to commence in places like Russia, Africa, Australia, and of course, China itself. There are Hummers in all of those places currently as a result of vehicles being imported on a single-unit basis by individuals or small distributors; the new owners intend to set up manufacturer-authorized dealer networks.
Tengzhong Heavy Industrial Machinery Co. did not have an easy time convincing the Chinese government to approve the Hummer deal.
The first concern was that the company has zero experience in passenger vehicle sales as it is currently a relatively unknown maker of heavy industrial equipment like earth-movers and dump trucks.
The second concern was that Hummer makes huge, thirsty SUVs, a product that flies in the face of China’s recent push for energy (and gasoline) conservation.
The first issue, that of inexperience, is being addressed by the new owners by keeping the US management, production facilities and dealer network intact. Hummer manufacturing plants are expected to be built in the future in China, but Tengzhong officials have adopted a take-it-slow approach as they intend to learn the business first before any expansion of manufacturing in China.
Hummer’s current managers, led by CEO Jim Taylor, will continue to manage the company, and the headquarters and manufacturing plants will remain in the United States.
Tengzhong does not have to take all of Hummer’s manufacturing plants in the deal, or, for that matter, all of GM’s planned engineering updates for future Hummers, but they are expected to sign addendums or separate contracts to gain access to those items on an as-needed basis.
The second issue of improved fuel efficiency is expected to be addressed by new hybrid powertrains in some markets, and new diesel powerplants in other markets.
The “gas-guzzler” image attached to Hummer has really dogged the company’s fortunes in the last few years, as many consumers have come to view Hummer as symbolic of the American auto industry’s lack of concern about fuel economy. The company’s value has suffered as a result. Even as recently as July of 2008, GM’s estimate of the Hummer’s eventual sale price was around $500 million. But, Hummer had only one buyer at $150 million, and the deal announced today still almost went off the tracks at that price, with one of the stated concerns the poor fuel economy of Hummer’s vehicles.
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GM Official Press Release:
GENERAL MOTORS AND TENGZHONG SIGN DEFINITIVE AGREEMENT FOR SALE OF HUMMER
DETROIT and SICHUAN, Oct. 9, 2009 – General Motors (GM) and Sichuan Tengzhong Heavy Industrial Machinery Co., Ltd (Tengzhong), today announced that the companies have entered into a definitive agreement that will allow Tengzhong to acquire GM’s premium all-terrain HUMMER brand.
Under the terms of the definitive agreement, the buyer will acquire the ownership of the HUMMER brand, trademark and tradenames, as well as specific IP license rights necessary for the manufacture of HUMMER vehicles. The buyer will also assume the existing dealer agreements relating to HUMMER’s dealership network.
Tengzhong intends to purchase HUMMER through an investment entity, in which it will hold an 80 percent stake. Mr. Suolang Duoji, a private entrepreneur with holdings that include the Hong Kong-listed thenardite producer Lumena, will hold the remaining 20 percent stake. Financial terms of the agreement were not disclosed.
The transaction is subject to customary closing conditions and regulatory approvals and/or review by government agencies in the U.S. and China. The completion of the definitive agreement enables the companies to continue and further the overall regulatory review process.
“HUMMER is a strong global niche brand and this agreement signifies another important milestone in writing the next chapter for both GM and HUMMER,” said Fritz Henderson, GM President and CEO. “For HUMMER, the combination of its knowledgeable leadership team, vehicle design expertise and the capital financing of Tengzhong portend a successful future.”
Under the agreement, HUMMER would contract vehicle manufacturing, key components and business services from GM during a defined transitional time period. For example, GM’s Shreveport assembly plant would continue to contract assemble the H3 and H3T and AM General’s Mishawaka assembly plant will continue to assemble the H2. Both facilities will produce the specified vehicles until June 2011, with an optional one year extension until June 2012. The deal is expected to secure more than 3,000 jobs in the U.S. related to the sale and manufacturing of HUMMER vehicles.
HUMMER will continue to be managed by members of its existing leadership team including James Taylor, who will remain in his current role as HUMMER’s chief executive officer. Prior to joining HUMMER, Taylor was General Manager of Cadillac where he oversaw a reinvigoration of the brand, leading key innovations in design and technology as well as the development of new models.
“We are fortunate to have a partner who understands and recognizes the importance of continuing investment in HUMMER’s heritage as a U.S.-based and branded company with a view toward capitalizing on global opportunities,” said Taylor. “Backed by a privately owned and well-capitalized company, we are going to be able to focus on providing customers with more efficient models that deliver HUMMER’s promise of authentic, purpose-built design and engineering.”
Once the transaction is complete, HUMMER will become the first automaker to offer an alternative fuel powertrain in every model, with the addition of E85 FlexFuel capability in the 2010 H3 and H3T. HUMMER is also in the process of obtaining emissions certification for a diesel H3 that will be introduced in markets outside of North America. The brand’s future product development will focus on improving efficiency and performance in current HUMMER models with alternative fuel powertrains, more efficient gas engines, 6-speed transmissions and diesel engines.
“This transaction marks an exciting step for both Tengzhong and HUMMER, as we invest in a business that has significant opportunity in the U.S. and around the globe,” said Yang Yi, chief information officer of Tengzhong. “We are excited about some of the initiatives already underway at HUMMER that we believe our investment will be able to accelerate, particularly related to the creation of the next generation of more fuel-efficient vehicles to meet not only future regulations but also customer expectations.”
Credit Suisse is acting as exclusive financial advisor and Shearman & Sterling is acting as international legal counsel to Tengzhong on this transaction. Citi is acting as financial advisor to GM.
For more information on the agreement go to www.transactioninfo.com/tengzhong.
About General Motors: General Motors, one of the world’s largest automakers, traces its roots back to 1908. With its global headquarters in Detroit, GM employs 219,000 people in every major region of the world and does business in some 140 countries. GM and its strategic partners produce cars and trucks in 34 countries, and sell and service these vehicles through the following brands: Buick, Cadillac, Chevrolet, GMC, GM Daewoo, Holden, Opel, Vauxhall and Wuling. GM’s largest national market is the United States, followed by China, Brazil, the United Kingdom, Canada, Russia and Germany. GM’s OnStar subsidiary is the industry leader in vehicle safety, security and information services. General Motors acquired operations from General Motors Corporation on July 10, 2009, and references to prior periods in this and other press materials refer to operations of the old General Motors Corporation. More information on the new General Motors can be found at www.gm.com.
About The Buyer
The investment entity buying Hummer will be jointly owned by Tengzhong and private entrepreneur Suolang Duoji. Tengzhong will hold 80 percent of the entity and Mr. Suolang 20 percent.
Sichuan Tengzhong Heavy Industrial Machinery Co., Ltd. (“Tengzhong”) is one of China’s major privately owned engineering companies. Tengzhong is a manufacturer of heavy machinery equipment with a presence in special-use vehicles, road and bridge construction equipment and construction and energy industry equipment.
Since its establishment, Tengzhong has quickly become a major manufacturer of machinery and construction components through a series of successful acquisitions. Tengzhong prides itself on its automated manufacturing equipment, its processing systems, significant research and development initiatives and commitment to innovation.
Mr. Suolang Duoji, a private entrepreneur from Sichuan Province has holdings that include thenardite producer Lumena which was recently listed on the Hong Kong Stock Exchange.