Chinese billionaire Li Shufu's Geely Group acquired a 9.69 percent stake in Daimler for $9 billion, making them the largest shareholder of the German automaker. The German government announced they would be launching an investigation into tightening the rules that govern when an investor needs to disclose their holdings in a company since Geely had crossed the regulatory threshold of three percent and five percent without previously disclosing. Geely entered into a so-called collar trade for the entire stake, making this the largest deal of its kind in a single stock globally. Bank of America Corp. led the transaction with the help of Morgan Stanley. These collar trades, used in a hedging strategy that requires puts and call options of the same size and with the same expiration allowed Geely to quickly build the stake while avoiding breaching the German rules that require shareholders to disclose holdings exceeding the previously mentioned three and five percent.
The collar trades reduce Geely's potential losses from a decline in Daimler's price but would also allow them to cap prospective gains if the stock climbs. The major purchase of stake into Daimler, which owns the Mercdes-Benz brand among many others, Germany fears that its highly prized expertise could fall into Chinese hands. Geely under Li's leadership has been the most aggressive in expanding internationally. Aside from this transaction, Geely already bought Volvo Cars from Ford in 2010 and also acquired an 8.2 percent stake in non-affilated truck maker AB Volvo. The company also owns 49.9 percent of Malaysia's Proton and 51 percent of luxury brand Lotus.
According to the Chinese Association of Automakers, domestic sales of passenger vehicles in 2017 totaled 24,718,000 units. That number surpasses the American and Western European markets. And while in the American and Western European markets there are a mix of appetite for foreign brands, the scene is completely different where the Chinese consumers prefer local brands. So while Geely has exposure to the world's largest car market, they themselves will require years to perfect and acquire the engineering prowess of the Mercedes brand or the 130-year history of Daimler. Such large acquisitions in turn will allow Geely to purchase the knowledge and engineering prowess in return turn back to the company's home market.