Daimler Gains 5% Stake In Aston Martin With New Engine Pact

Daimler Gains 5% Stake In Aston Martin With New Engine Pact

Daimler AG (OTCMKTS:DDAIF) (ETR:DAI)’s Mercedes-AMG GmbH division, the world’s third largest luxury car maker, has agreed to supply V8 engines for future models of Aston Martin Logonda Ltd and in return will receive a 5% stake in the British firm, the two companies announced on Thursday.

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Daimler to gain stake in multiple steps

Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) will gain the 5% stake in multiple steps, based on the progress of the technical collaboration, under the non-cash transaction. The deal is expected to be finalized by the end of this year. Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) will have a non-voting stake in Aston Martin, a company that rose to fame in 1963 after it was featured in James Bond movies.

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The announcement comes just about three months after Italian private equity firm Investindustrial completed the acquisition of a 37.5% stake in Aston Martin for $241 million. Investindustrial outbid India’s Mahindra & Mahindra to win the stake. The Italian private equity firm will play a key role in the new product development program worth more than 500 million pounds. Investment Dar had acquired the Gaydon, Warwickshire-based luxury car maker in 2007 from Ford Motor Company (NYSE:F). Another large shareholder of Aston Martin is Adeem Investment Co. of Kuwait.

Will Daimler replace Ford?

The agreement with Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) will help the British company compete with the likes of the Jaguar Land Rover, which is owned by India’s Tata Motors, and Volkswagen AG (OTCMKTS:VLKAY) (ETR:VOW) (FRA:VOW)’s Porsche and Bentley cars, says Rhys Jones of Reuters. Daimler AG (OTCMKTS:DDAIF) (ETR:DAI)’s Mercedes-Benz unit will also supply electronic components to Aston Martin. The British company currently has an engine supply agreement with Ford Motor Company (NYSE:F), which manufactures V8 and V12 engines at its Cologne plant in Germany. The deal with Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) could replace Ford Motor Company (NYSE:F).

Aston Martin has been struggling since the 2008 financial crisis. In FY 2012, the company posted a 9% decline in earnings as sales plunged about 10% to 3,800 units. Meanwhile, Jaguar Land Rover has spent about $800 million since 2008 to strengthen its presence in emerging market, especially China.

Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) doesn’t have a luxury brand to compete with BMW’s Rolls Royce or Volkswagen AG (OTCMKTS:VLKAY) (ETR:VOW) (FRA:VOW)’s Bentley. So, the deal is expected to give the company an observer status, along with 5% stake in Aston Martin.

American shares of Daimler AG (OTCMKTS:DDAIF) (ETR:DAI) were up 0.57% to $70.89 at 1:27 PM EDT.

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