Aston Martin Lagonda: Heading towards the Geely takeover

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It’s a good thing Aston Martin Lagonda is making a four-door model these days. How else to accommodate its group of key shareholders – the Canadian billionaire Lawrence Stroll, the Chinese one Geely, Saudi Arabia’s public investment fund and Germany’s Mercedes. Together they own about two-thirds of it.

AML is still losing cash more than three years after its £500m bailout by the Stroll Yew Tree consortium. For now, he leads the AML strategy with 21% of the group. But, really, only its passengers can afford to keep this sportster on the road.

Geely wants to get its hands on the wheel. The carmaker, which not only controls Volvo Cars but also owns a tenth of Mercedes, paid £234m this week to double its stake in AML to 17%. Led by Continental billionaire Eric Li, Geely is keen to park the Aston brand in a car portfolio with brands such as high-end EV maker Volvo Polestar and sports cars Lotus. Geely can increase its stake to 22% by August next year.

Stroll may still need that additional equity. Owning a sports car maker, like a Premiership football club, requires deep pockets. AML has burned through at least £300m of cash flow (and two CEOs) since the Stroll bailout alone. It is expected to eat up another £300-400 million of negative free cash flow this year, according to S&P Global Ratings.

Perhaps it should come as no surprise that Yew Tree is taking some money off the table. The consortium is the source of 60% of Geely’s additional shares. Only around £95m is new action to support AML’s budget. At the end of March, this included £868m of net debt, just over twice projected ebitda. That leverage costs more than 10 percent a year. For a low-volume business that depends on every high-priced sale, that 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 continue.