Daimler puts foot on accelerator in China

German automaker Daimler unveiled plans Friday to boost its position in the fast-growing Chinese market by acquiring BAIC for 640 million euros, a 12-percent stake in the country's fifth-biggest car group.

Daimler -- which at the end of last year created a new position on its management board dedicated especially to China -- said in a statement it had decided to deepen its existing partnership with Beijing Automotive Group (BAIC) by buying a stake in its passenger car unit BAIC Motor.

BAIC is planning to float the subsidiary on the stock exchange and when it does so, Daimler would buy a stake of 12 percent, the German group said.

As part of the agreement, Daimler would receive two seats on the BAIC Motor's board of directors.

At the same time, the two sides would increase their stakes in existing joint ventures, they said.

BAIC's holding in the production joint venture Beijing Benz Automotive Company (BBAC) would rise to 51 percent from 50 percent, while Daimler's stake in the integrated sales joint venture Beijing Mercedes-Benz Sales Service would be increased to 51 percent.

Daimler and BAIC expect the deal -- which still has to be approved by the relevant authorities -- would be closed "by the end of this year or early next year."

A Daimler spokesman put the cost at 640 million euros ($875 million).

"Following our technical cooperation with BAIC Motor and the setup of our integrated sales company, we are now taking the next step in deepening our relationship even further," said Daimler chief executive Dieter Zetsche.

"Our investment is a strong sign of the increased level of trust and cooperation between our two companies and clearly emphasises the long-term commitment to a joint successful future of our two companies," he said.

BAIC chairman Xu Heyi said the partnership "has entered into its best phase ever, with further deepened cooperation in accordance with the mutual interests and development plans between both companies."

Daimler's acquisition of a 12-percent stake "will go a long way in accelerating the development of BAIC's self-owned brand in terms of capital, technology, management, and brand. At the same time, this will help Mercedes-Benz to boost its business performance in China," Xu said.

NordLB analyst Frank Schwope said Daimler has long been trailing rivals BMW and Audi, a unit of Volkswagen, in China, which is the world's most important market in terms of growth outlook.

In 2012, Daimler, which employs more than 2,000 people in China, sold around 210,000 of its Mercedes-Benz cars there. It aims to lift sales to 300,000 by 2015 with two thirds of those manufactured locally.

China is currently Daimler's third-biggest market after Germany and the United States, but is expected to become the German group's number one market by 2020.

According to the China Association of Automobile Manufacturers or CAAM, BAIC is China's fifth-biggest maker with sales of 1.69 million vehicles last year.

Daimler shares closed up 1.34 percent to 43.45 euros, outpacing the Frankfurt DAX which rose 0.74 percent to 7,833.39 points.

Talk of China's sovereign wealth fund taking a stake in Daimler resurfaced again Friday with the German weekly Wirtschaftswoche saying the CIC had built up a holding of nearly three percent.

A Daimler spokesman dismissed the report "speculation".

Two Chinese newspapers had reported last month that CIC planned to take a stake of 4 to 10 percent in Daimler,

But a source with knowledge of the matter dismissed the report, saying it was "not true".

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