Volvo IPO
Source: Getty Images

Volvo Cuts Valuation by $5 Billion Days Before Its Scheduled IPO

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Oct. 26 2021, Published 10:40 a.m. ET

Volvo Cars, owned by Zhejiang Geely Holding of China, announced it would be going public on Oct. 29, a day later than initially planned, holding a traditional bell-ringing ceremony. The company issued a press release on Oct. 18, stating it had published its prospectus and price range for its initial IPO and would be trading on the Nasdaq Stockholm.

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Volvo Cars initially priced its shares at 53 to 68 Swedish crowns, valuing the company at around $23 billion. Days before its scheduled IPO, Volvo cut its valuation and price per share. Here’s why.

Volvo Cars announces it will be offering its stock at the lower end of its initial range

Volvo IPO
Source: Volvo

IPOs are often held to generate capital and raise public awareness. Sometimes, the capital that's raised at an IPO is needed for expansion, while other times, it's used to fund current projects. Although Volvo Cars had intentions of raising enough capital to value itself at $23 billion, the company later announced it would begin trading on Oct. 29 at the lower end of its initial range—53 Swedish crowns.

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One U.S. dollar (USD) is equivalent to 8.65 Swedish crowns. If Volvo Cars begins trading at 53 Swedish crowns, it would lower the company's valuation to $18 billion—about $5 billion less than its initial valuation. Volvo Cars reportedly lowered its valuation to “appease investors.”

Nasdaq stated “it’s easy to see why investors needed some convincing. Volvo is still at its early stages of its transition to electric vehicles from combustion engines, and governance is a concern since Geely will still be the largest shareholder.”

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Volvo’s history, and what the company is valued at today

Volvo IPO
Source: Getty

Volvo Cars was founded in 1927 in Sweden. The brand is recognized for being luxurious, safe, and practical. In 1999, Ford purchased Volvo and remained the owner up until 2010 when it was purchased by Geely for $1.8 billion. While some parts are still sourced from Sweden, certain Volvo vehicles are manufactured in China and the U.S. The company also has plants in Asia.

In addition to owning Volvo Cars, Geely owns Polestar, an electric vehicle manufacturer. Polestar reportedly announced last month that it would go public by “merging with a U.S.- listed special purpose acquisition company (SPAC) backed by billionaire Alec Gores and investment bank Guggenheim Partners at $20 billion.”

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What is Volvo generating in revenue?

In July 2021, Geely Holding stated that it made a “first-half profit of $1.52 billion,” which is “more than double its profit of 5.52 billion crowns in the period of 2019” just before the COVID-19 pandemic struck. Although global shortages harmed the company’s ability to maintain production, “a strong market recovery” helped it bounce back by generating a promising stream of revenue.

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Is Volvo Cars the only company to lower its valuation prior to holding an IPO?

As of recently, many companies are either pushing back their plans to go public or making modifications to their prospectus, partly due to inflation and global supply chain issues. WeWork reportedly pulled out of its IPO in Sept. 2019 after the company’s business model was questioned by investors.

The company recently made a second attempt at going public through a special acquisition company. On Oct. 21, WeWork’s shares increased by more than 13 percent, reported CNBC.

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