China's Geely will complete its $1.8 billion purchase of Ford Motor Co's Volvo unit on Monday, a source with direct knowledge of the matter said, capping China's biggest purchase of a foreign car maker.

The deal, which would see the privately owned parent of Geely Automobile buy Volvo, in many ways also reflects China's rapid rise on the global auto stage, after it passed the United States last year to become the world's top auto market.

The final value of the deal will be around the figure previously announced, although the actual amount could vary depending on exchange rates, said the source, speaking on condition of anonymity pending an official announcement.

Geely, which only started making cars in 1986, told Reuters last week that it had received all necessary government approvals for the deal, including from the commerce ministry and the state planner.

With the deal now set to close, the real challenge for Geely will lie ahead as it aims to restore Volvo to long-term profits. Volvo Cars posted revenue of $12.4 billion in 2009 by selling 334,000 cars, but it recorded a pre-tax loss of $653 million.

Geely's plan includes using the Swedish nameplate to produce luxury brands in China, while maintaining its operations in Europe to supply the international market.

EQUIPPED FOR SUCCESS?

Despite China's dismal record at overseas M&A, Geely may be better equipped for success due to its experience working with foreign partners, including its acquisition of Australian gearbox maker Drivetrain Systems International and its tie-up with British cab maker Manganese Bronze, said IHS Automotive analyst John Zeng.

Geely is not a beginner in global M&A like many people think, he said. In China, Geely has established itself as a mass market car maker, the acquisition of Volvo provides an opportunity to bring it to the next level.

Geely Chairman Li Shufu, who got his start in refrigerator parts and motorcycles and has since been dubbed China's Henry Ford, has already been named chairman of Volvo.

German media reported last month that Stefan Jacoby, a former North American executive of Volkswagen AG, had been hired to become Volvo's new chief executive.

Hong Kong-listed shares of Geely Automobile were up 1.4 percent midday, in line with a 1.3 percent rise in the Hang Seng Index, after briefly rising more than 2 percent.

Its shares surged nearly seven-fold last year as China's auto market zoomed to become the world's largest and enthusiasm mounted over the Volvo bid. They have given back some of those gains this year, down 31 percent year to date, sharply underperforming a 2.7 percent decline for the Hang Seng.

NEW INVESTMENT

Major new investment is a critical part of Li's plan to turn Volvo around, including a new manufacturing facility in China that would nearly double the Swedish carmaker's capacity to take advantage of China's vast auto market.

A number of Chinese cities, including Beijing, Shanghai and Chengdu, are courting the firm for the manufacturing site, but no decision has been made so far.

Geely has said it is prepared to pump up to $900 million in capital into Volvo, which would be on top of the $1.8 billion that Geely is paying Ford for the carmaker.

Geely's plans would see its new Volvo China plant nearly double its annual global production, with an aim to sell 150,000 Volvo cars in China annually by 2015.

For Geely, the deal could improve its brand image and awareness, which would in turn give its customers more confidence about its own future growth, said Wang Jing, an analyst at Phillip Securities. If it can't run its own business well enough, it won't have too much resources to put into Volvo. It is only a start, she said.

The purchase could also eventually help the listed Geely Automobile, which is not involved in the actual deal but could at some point buy some Volvo assets or technology from its privately held parent.

In the longer term, Geely Auto can share Volvo's technology which could upgrade its own brand, said Johnny Wong, an analyst at Yuanta Research. I bet Geely Auto will not take the asset in whole in one go but bit by bit in order not to burden its balance sheet too much.

(Additional reporting by Michael Wei in Beijing; Writing by Doug Young; Editing by Ken Wills and Lincoln Feast)

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