BEIJING -- Daimler turned down an offer from China's Zhejiang Geely Holding Group to take a stake of up to 5 percent via a discounted share placement, sources said.
Geely is keen to access Daimler's electric car battery technology and wants to establish an electric car joint venture in Wuhan, China, sources with knowledge of Geely’s thinking said.
Geely, which also owns Volvo, still hopes it can secure a deal in some form over the coming weeks, they said.
The two automakers met in Beijing in recent weeks at Geely's behest. Geely offered to take a stake of 3 to 5 percent if Daimler would issue new shares at a discount, the sources said.
A 5 percent stake would be worth $4.5 billion at current market prices. Although Daimler declined the offer, it told Geely it was welcome to buy shares in the open market, the sources added.
It was not immediately clear what kind of discount for the shares Geely had in mind or whether Geely was interested in buying the shares on the open market
A Geely spokesman declined to comment. A spokesman for Daimler said the company was "very happy with our shareholder structure at present," but added that it would welcome new investors with a long-term interest in the company.
Carmakers in China have embarked on a flurry of deal-making, as they scramble to boost production of electric and plug-in hybrid vehicles ahead of tough new quotas to be imposed by Beijing, which wants to reduce urban smog and lower the country’s reliance on oil.
Geely, which has a market value of some $32 billion, is the leading domestic brand in China with a 5 percent market share, according to an analysis by Nomura Securities.
A stake of 5 percent would establish it as Daimler’s third-largest shareholder behind the Kuwait Investment Authority and BlackRock, who hold 6.8 percent and 6 percent respectively, according to Reuters data.
Daimler, however, has a long-established joint venture with Chinese carmaker BAIC Motor, which Daimler described as "our most important partner in China."
This month it announced plans to invest at least 5 billion yuan ($757 million) in electric battery and vehicle production with BAIC in China. It also has another tie-up with BYD, a Chinese automaker backed by Warren Buffett.
The maker of Mercedes-Benz cars has previously held similar discussions about an investment from BAIC. But Daimler has consistently refused to issue new shares out of concern for existing shareholders.
Other recent potential deals involving global and Chinese automakers include Ford Motor's announcement in August that it is looking at setting up an electric car venture with Chinese firm Zotye Automobile.
Any deal involving an equity stake in Daimler would be Geely’s largest since it bought Volvo for $1.8 billion in 2010. This week, Geely and Volvo launched the first car in China under their new brand, Lynk & CO, which the Chinese group intends to eventually take global.