Aston Martin Lagonda: steering a course towards a Geely takeover

It is a good thing that Aston Martin Lagonda makes a four-door model these days. How else to accommodate its gaggle of key shareholders: Canadian billionaire Lawrence Stroll, China’s Geely, Saudi Arabia’s Public Investment Fund and Germany’s Mercedes. Together, they own about two-thirds.

AML still bleeds cash more than three years after its £500mn rescue by Stroll’s consortium Yew Tree. For now, he is driving AML’s strategy with 21 per cent of the group. But, in reality, only his passengers can afford to keep this sportster on the road.

Geely wants to get its hands on the wheel. The automaker, which not only controls Volvo Cars but also owns a tenth of Mercedes, this week paid £234mn to double its equity stake in AML to 17 per cent. Led by mainland billionaire Eric Li, Geely is keen to park the Aston brand in a car portfolio with marques such as Volvo’s high-end electric-vehicle maker Polestar and Lotus sports cars. Geely can lift its stake to 22 per cent before August next year.

Stroll may yet need that added equity. Owning a sports-car maker, like a Premiership football club, requires deep pockets. AML has burnt through at least £300mn of cash flow (and two chief executives) just since Stroll’s rescue. It should wear through another £300mn to £400mn of negative free cash flow this year, according to S&P Global Ratings.

It should perhaps be no surprise that Yew Tree is taking some money off the table. The consortium is the source of 60 per cent of Geely’s additional shares. Only about £95mn is new equity to bolster AML’s balance sheet. At the end of March, this included £868mn of net debt, just over two times forecast ebitda. That leverage costs more than 10 per cent annually. For a low-volume business that depends on every high-priced sale, such debt keeps AML’s growth prospects in check.

Geely paid £3.35 for its shares and the market price remains a fifth below that. Even given some dilution, the market clearly has its doubts. Expect Geely’s creeping takeover to roll on.