Tengzhong inks deal to buy General Motors' Hummer brand

Sichuan Tengzhong Heavy Industrial Machinery (Tengzhong) on Friday signed an agreement to buy General Motors' Hummer brand.

China-based Tengzhong will buy the Hummer brand, trademark and trade names, as well as specific intellectual property (IP) license rights necessary for the manufacturing of Hummer vehicles. It will also take on the existing agreements related to Hummer's dealer network. The parties did not disclose the financial terms of the deal but media in the US have speculated that Tengzhong is paying $150 million for the deal.

Tengzhong will enter a contract with GM for vehicle manufacturing, key components and business services until June 2011, with an option to extend the contract by one year. GM said the manufacturing deal will secure more than 3,000 jobs in the US related to the sale and manufacturing of Hummer vehicles.

Hummer will be managed by its existing team and James Taylor, who was previously general manager of Cadillac, will continue as Hummer's chief executive officer.

"We are fortunate to have a partner who understands and recognises the importance of continuing investment in Hummer's heritage as a US-based and branded company with a view toward capitalising on global opportunities," said Taylor in a written statement. "Backed by a privately owned and well-capitalised company, we are going to be able to focus on providing customers with more efficient models that deliver Hummer's promise of authentic, purpose-built design and engineering."

Tengzhong is a privately owned engineering company that makes heavy machinery equipment. It has a presence in special-use vehicles, road and bridge construction equipment and construction and energy industry equipment.

It is buying Hummer through an investment vehicle, in which Tengzhong owns 80% and Suolang Duoji the remaining 20%. Suolang is a private entrepreneur from China's Sichuan province. His holdings include Hong Kong-listed thenardite producer Lumena Resources.

The deal is subject to regulatory approvals by government agencies in the US and China. Tengzhong and GM first announced a Hummer takeover deal in June. But the deal attracted criticism in China almost immediately. Being primarily a manufacturer of heavy machinery equipment, some specialists doubted whether Tengzhong would be able to manage a vehicle brand. Questions were also raised about why a Chinese company should buy a fuel-inefficient and low-technology brand at a time when China is trying to move towards more environmentally friendly vehicles.

The noise surrounding the deal had made some specialists wonder whether Tengzhong, the only serious bidder for the Hummer brand, might abandon the deal altogether. This may explain why the price tag now being discussed is significantly below the $500 million that was speculated earlier this year.

In the statement announcing the deal, Tengzhong CEO Yang Yi referred to initiatives already underway at Hummer to create more fuel-efficient vehicles and said Tengzhong's investment will accelerate these plans.

Tenghzhong is taking financial advice from Credit Suisse and legal advice from Shearman & Sterling. Citi is the financial advisor to GM.