Case Study Of Collar Option In Geely’s Acquisition Of Daimler

In the growing wave of acquisitions by domestic and foreign companies,risking control is an important factor.The unique “revenue cap and bottom guarantee” feature of collar options has attracted widespread attention in terms of risk management.In February 2018,Geely announced that it has completed the acquisition of Daimler,owning 9.69% of Daimler’s shares and becoming its largest shareholder.Within one year after its acquisition,Daimler’s share price has been down,but Geely used collar options to effectively avoid the risk of Daimler’s share price going down,and prevented the huge losses that Geely may face.This fact shows that Geely successfully used collar options to control Daimler’s stock price volatility risk during the acquisition of Daimler and reduced the cost of acquisition losses.The case of Geely’s acquisition of Daimler is by far the largest transaction using collar options for a single stock acquisition,which is representative.Therefore,this article chooses this case to specifically analyze the application of collar options in acquisitions.This paper first introduces collar option in detail,and sorts out related concepts and theories to provide theoretical support for the case analysis in the following article.Then from the acquisition process,collar option application process to the acquisition in detail;Then it analyzes the reasons for Geely’s use of collar options,which are mainly based on risk control purposes and acquisition target orientation.Then this paper analyzes the effect of geely use collar option,this paper mainly discusses the collar option to avoid the downside volatility risk and the effect of the collar options for financial risk management effect,first analysis of the real application of collar options,found its effect to avoid the downside volatility risk mainly manifested as follows: first,from the income level,whether geely use collar options,the revenue generated by the is the same,suggests that the collar options control gains in this case the effect is not significant;In the second place,from the risk level,under the condition of using the collar option,will trigger the collar option,put option,in the the geely’s loss can be controlled within 20%,rather than using the collar options,geely would have serious losses,so geely in the acquisition method very good control of the collar options Daimler shares downward movements;Secondly,the effect of controlling financial risks: First,the applicationof collar option has a significant effect on the control of financing risks,and provides a guarantee for the acquisition funds;Second,the application of collar option effectively prevents payment risks,so that Geely can still keep the cash needed for operating activities in the acquisition process in a state of full;Third,the application of collar option cannot control the exchange rate risk in cross-border acquisition,but it can be avoided by using the constraints of contract terms when signing contracts.Finally,based on the case of Geely’s successful use of collar options to control acquisition risks,this article provides three inspirations for other companies to apply collar options: First,enterprises should have a correct and complete understanding of collar options when using collar options strategies,and eliminate professional knowledge misunderstandings;Second,collar options should be used reasonably according to their own circumstances in cross-border acquisitions;Thirdly,the application of collar options should be promoted correctly and reasonably;Fourth,the application of collar options and other derivatives should pay attention to both risk and return.