Shanghai surprise from Milton Keynes' black cab maker
Manganese Bronze in Milton Keynes is on the brink of signing a £53 million deal to create a joint venture company with Chinese car manufacturer, Zhejiang Geely, to manufacture its classic London black taxis in Shanghai.Production of the cars is expected to start in mid-2008 with 20,000 units a year aimed initially at the flourishing Chinese market and the petrol-orientated US market.
Manganese’s Coventry plant will continue to part-manufacture and assemble the cabs, though many of the components currently provided by over 500 UK suppliers will be imported from China through the JV.
The £53m investment will cover the purchase of land (£9m), intellectual property (£5.6m) and fund construction and factory fit out. Final assembly and sales will be undertaken by Shanghai Maple, a subsidiary of Geely, which will have the right to sell these vehicles within Asia, while Manganese Bronze will have the right to sell them in the rest of the world.
Manganese will provide £19.85m, which it plans to raise through an intellectual licensing agreement and the issue of 5.7 million new shares to Geely, representing 23 per cent of Manganese’s enlarged share capital.
The IPR for the joint venture is valued at £5.6m. The 5.7m new ordinary shares it will pass to Geely are based on a valuation of £2.50 a share, raising £14.25m that will be invested by Geely in the joint venture.
The shares and intellectual property will secure Manganese with an initial stake of 37.6 per cent in the JV. Manganese retains the right to purchase shares from Geely for £6.6m to increase its stake to 50 per cent in the venture at any time over the next five years.
Geely will fund the joint venture total cash investment of £38.4m, with Shanghai Maple providing the land valued at £9.0m, which combined secure a 62.4 per cent stake in the joint venture.
Manganese has been pursuing a strategy of “controlled” international expansion following the divestiture of its loss making components division and has been seeking a manufacturing partner in China in order to develop a low cost manufacturing facility and to gain access to a country with a growing vehicle market.
It currently manufactures around 2,500 vehicles in Coventry of which 95 per cent are sold to the UK. While an eight-fold increase in production is expected to increase revenues substantially, the vehicles will be sold at a lower price than the UK, manufactured with a different internal specification and fitted with a petrol engine rather than diesel.
Mark Fryer, the Mang-anese group’s finance and business development director, said: “More than 1 million taxis and limousines are used in China, which is increasing 20 per cent per annum.
“Less than one per cent of people own their own cars. The vehicle market is growing rapidly and we want to tap into that growth.”
Chairman Li Shufu of Geely added: “The London black taxi is an iconic vehicle and we believe that the joint venture can create significant value for shareholders of both sides.
“We look forward to a significant export opportunity with Manganese Bronze. This is an important agreement for Geely and we are confident that the joint venture will be a success.”
Geely was chosen following extensive talks. It began automobile manufacturing in 1996 and has since grown as a key brand for low cost vehicles in China.
It has an annual production capacity of 250,000 vehicles, 200,000 engines and 150,000 gearboxes from four separate manufacturing bases.
This capacity is continuing to grow rapidly as demand for Geely’s vehicles has grown in excess of 50 per cent in the last six months.
The joint venture agreement will be subject to regulatory approval in China, and this transaction will require approval by Manganese Bronze shareholders at an Extraordinary General Meeting.
The transaction would constitute a Class 1 transaction and a circular will be sent to shareholders once the definitive documentation has been finalised.