Daimler to Buy 12% Stake in BAIC

BAIC Motor Co. has signed a binding agreement to sell 12% of its equity to joint venture partner Daimler AG for €640 million ($873 million).

Daimler says it will be the first western automaker to buy a direct equity stake in a Chinese carmaker. Reports of the impending deal surfaced late last week.

Daimler will get two seats on BAIC Motor's board. The companies expect to complete the deal by late this year or early 2014, pending regulatory approvals.

BAIC says Daimler's investment will bring capital and technology that will help the Chinese company develop its own car brand. Daimler says its stake in BAIC will allow it to capitalize on the growth of China's domestic auto industry. The Stuttgart-based company is struggling to improve the sub-par performance of its Mercedes-Benz Cars unit in the country.

Daimler also will hike its stake in the partners' sales venture, Beijing Mercedes-Benz Sales Service, to 51% from 50%. BAIC Motor will boost its ownership in their carmaking venture, Beijing Benz Automotive Co., by 1% to a 51% majority.

BAIC's controlling stake will allow the Chinese company to consolidate the manufacturing venture's assets and results with its own before going public. BAIC has said it aims to launch an initial public offering later this year. Analysts say the timing of the Daimler deal suggests the IPO might be delayed until 2014.