Jardine Matheson said it will transfer its Mercedes-Benz business in China to its mainland car showroom affiliate, Zhongsheng Group, in a US$1.3 billion cash and shares deal that would raise its stake in the dealer to 21.25 per cent and make it the second-largest shareholder.
The conglomerate, which is the biggest landlord in Central through its subsidiary Hongkong Land, has reached an agreement to transfer the China business, currently operated under its Zung Fu brand, to Zhongsheng Group, Jardine Matheson said in a statement on Thursday.
The deal will lift its stake in Zhongsheng Group from 19.58 per cent, according to Zhongsheng Group’s 2020 annual report, making it the second-largest shareholder in Zhongsheng Group after its own founders.
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“By integrating and aligning with one of China’s … automobile distribution groups, Jardines will enjoy an enhanced presence in China’s rapidly evolving auto sector,” said John Witt, group managing director of Jardine Matheson in the statement.
Zhongsheng will pay US$900 million in cash, with the rest of the balance settled in new shares to be issued to Jardine Motors, which is a subsidiary of Jardine Matheson, Zhongsheng said in a stock exchange filing on Thursday.
The issue price is set at HK$63.40, which represents about a 2.4 per cent discount to the closing price of June 29 at HK$64.95, the filing said.
In China, Mercedes-Benz sold 774,000 units in 2020, representing an 11.7 per cent increase from the previous year, data from Zhongsheng Group’s annual report shows. Hong Kong-listed Zhongsheng Group already distributes the luxury German brand in China.
Zung Fu Group is the wholly-owned subsidiary of Jardine Motors, which runs 33 Mercedes-Benz outlets including 23 full-service dealers, five showrooms and three service workshops in China. In Hong Kong and Macau, Zung Fu is the exclusive retailer of Mercedes-Benz cars, according to the company’s website.
Combining Zung Fu’s Chinese mainland business with Zhongsheng will enable Jardine Matheson to consolidate its investment in the sector in the world’s largest car market. Growth has slowed in China since 2018, a year which marked the sector’s first downturn after three decades of expansion. In 2020, some 19.3 million passenger vehicles were sold, down 6.8 per cent from 2019, data from the China Passenger Car Association shows.
Aside from the Mercedes-Benz brand, Zhongsheng Group deals with Lexus, Audi, Porsche, Land Rover, Toyota, Nissan, Volkswagen, and Honda. For the full year of 2020, its net profit came to 5.6 billion yuan (US$870 million), up 23.5 per cent from the previous year.
Completion of the deal is still subject to consent by Mercedes-Benz, and the approval of shareholders of Zhongsheng and Chinese regulators. Morgan Stanley will act as the financial adviser for Jardine Matheson, while Bank of America will advise Zhongsheng.
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