GAC to take on Gonow by 3.2 billion yuan

Guangzhou Auto (GAC) will purchase Gonow before the opening of the Guangzhou Auto Show by 3.2 billion yuan ($48 million), and the final date is upon decision of the board of GAC, according to the National Business Daily, citing an insider of Gonow Auto.

"It's fixed that we will definitely sign the agreement before the Guangzhou Auto Show in December. Both sides have no problem with the cooperation," an insider of Gonow Auto revealed. However, speaking of the purchasing price, he refused to comment. "Only the chairman knows the details."

GAC will form a joint venture with Gonow in which GAC will hold 51 percent of the equity. The two automakers have signed a strategic cooperation agreement in April and have decided to sign the final contract in October.

The evaluated value of Gonow is 2.5 billion yuan ($37.5 million), plus the 700 million yuan ($105 million) of land increment, which is approximately 3.2 ($48 million) billion in total. However, this may be a great pressure for GAC. According to the interim report of GAC, the company earned a profit of 2.3 billion yuan ($34.5 million) in the first half of 2010. Among the 16.4 billion yuan ($246 million)'s cash flow and cash equivalent at the end of the period, 7.6 billion yuan ($114 million) were borrowed. The auto group is still short of money comparing to its huge investment plan.

Guangzhou Auto mainly produces mid and high-end passenger cars. The enterprise aims to make up for a lack of independent brand mini cars, pickups, and SUVs through the acquisition of Gonow.