Aston Martin Lagonda (LON: AML) (OTCPK: AMGDF) shares are up 12% in London this morning on the back of a deal announced with Geely. That Geely, the Chinese car manufacturer, is taking a significant stake at well above market prices is interesting enough. But there is a coda to the deal, which is that it also reduces the Yew Tree stake, which is partly where Lawrence Stroll's interest lies. So we have both a buy in and new capital and also a reduction in the stake of the controlling shareholder.
China is Aston Martin's second largest market and key to all and any future growth ambitions. Astons are rich men's toys - nothing wrong with that but they are - and with 1.3 billion people rapidly becoming richer there will be greater demand for such toys in the future. That's partly where Geely's interest comes in - looking at their own home market. There is also the more usual interest from an upstart economy into established brands. The brand being the most difficult part of the business to grow after the factories, the competence and so on. It's therefore common enough for established but down on their luck brands to be sold to those upstarts - each side gains something. It's happened to more than one car brand too - Louts is another example.
Aston Martin Lagonda share price from London Stock Exchange The details of the deal: “Geely bought 42mn shares from Stroll's consortium, and was issued with 28mn new shares at 335p each, a substantial premium over the current share price of 231p.” The reason for the paying over the market price? Because Geely really wants to buy all of Aston Martin. If made a bid back in 2020, when Stroll was the winning bidder. It made another attempt last year, bought some 7% in the market at the time of the rights issue last fall. Geely are really interested here and for the long haul too, not just as a transactional deal. That's why Stroll was able to charge that premium to market price.The extra cash will come in useful of course - losses doubled last trading year to half a billion. That's something that can't be supported forever. Of course - come on, of course - a recovery is predicted for this year and everything will be just fine next. All of that really depending upon the sales success of the new DBX model. After that there's the difficulty of conversion to an all electric line up to come. These coming years aren't going to be cheap for Aston so the tie up with Geely might get even closer.