(Yicai Global) Feb. 25 -- Shares of Geely Automobile Holdings climbed after the Chinese vehicle manufacturer abandoned a plan to merge with Volvo Cars, but pledged closer cooperation on powertrain, electric cars, and autonomous driving.

Geely Auto [HKG: 0175] jumped as much as 4.8 percent in Hong Kong this morning before closing 2.7 percent higher at HKD26.60 (USD3.43). The benchmark Hang Seng Index added 1.2 percent.

The pair announced their intention to merge last February, saying they would join forces to form a stronger global alliance with a view to issuing shares in Hong Kong and Stockholm. Now they will form a new entity to integrate their powertrain operations, while maintaining their independence, Hangzhou-based Geely said via its WeChat account yesterday.

“The final decision was mainly affected by concerns among shareholders and investors,” China Securities Journal reported today, citing Chief Executive Gui Shengyue. They worried that a merger would dilute the two firms' stakes and put the listed company under a relatively heavy financial burden, he said.

Geely Auto and Volvo are units of Geely Holding Group, which bought the underperforming Swedish automaker from Ford Motor in 2010. Scrapping the merger will help shareholders assess their separate strategies and performance to make more flexible decisions, Geely Auto said in its statement.

Both firms may seek additional funding. Last September, Geely Auto won approval to issue shares on Shanghai's Nasdaq-like Star Market, seeking to raise as much as CNY20 billion (USD3.1 billion). Volvo may also explore capital market opportunities, according to yesterday's statement.

Going forward, cooperation will be closer. The pair will jointly develop electric vehicles, driverless technologies, and team up on procurement to cut costs. Lynk, their joint venture electric vehicle brand, will use Volvo's overseas sales and after-sales channels to serve global users.

The final proposal promotes synergies while eliminating some investors' concerns, said Gui, adding that this is the most responsible solution. 

Editor: Emmi Laine