The Star Business, Wednesday January 18, 2012
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After Proton stake sale, all eyes on merits of deal
Behind the news - By Choong En Han
NOW that the dust has finally settled on who will own Khazanah Nasional Bhd's 42.74% stake in national carmaker Proton Holdings Bhd, the focus will shift over to the merits of the deal.
This is important to shareholders of DRB-Hicom Holdings Bhd, the conglomerate which is not only buying the stake but also making the mandatory general offer for the rest of Proton. And it is important for shareholders of Proton as well.
There will be questions whether Khazanah has struck a fair deal, given that the stake was bought at roughly RM8 per share over several years and in various tranches from different shareholders.
We can expect the picture to become clearer when DRB-Hicom groupmanaging director Datuk Seri Mohd Khamil Jamil meets the press today.
Proton has a list of well-known problems, including its extremely underutilised Tanjung Malim plant, its Lotus turnaround plan and its need for a strategic global partner to drive future growth.
The controlling stake in Proton has come full circle and is finally back to DRB-Hicom. And it looks like it will be the turning point for the national carmaker and this is where all the hard work begins for DRB-Hicom. Words like partnerships, collaborations and strategic joint ventures have been the more favoured keywords recently for Khamil to relate to Proton.
People looking at Proton Exora multi-purpose vehicle at a Proton showroom. The question now is whether DRB-Hicom can lift Proton out of its financial doldrums.
No stranger to these keywords himself, indeed Khamil has led DRB-Hicom to greater heights by associating the automotive and industrial conglomerate to other global automotive marques and establishing its presence throughout the entire value chain of the automotive industry.
The question now is whether DRB-Hicom can lift Proton up from its financial doldrums after being dragged down by provisions made for its Lotus turnaround plan.
Despite being a domestic-centric car manufacturer, Proton needs to bank on its export base to increase its sales volume and drive the next phase of growth, as the local market seems to be reaching a saturation point with the total industrial volume hovering around 600,000 units.
Collaborating with a foreign strategic partner seems to be the obvious choice for Proton to become a global brand or, maybe, in the nearer term, an Asean brand.
Analysts and observers alike have touted Volkswagen to be the best suitor for Proton, with the latter's significantly underutilised Tanjung Malim plant fitting Volkswagen like a glove to meet the German marque's ambition for a manufacturing hub in Asean.
Excess fat: ‘Proton cars at a logistic centre in Kuala Langat. CIMB believes DRBHicom is well positioned to reap significant low-hanging fruits.’
There is also another potential collaboration on the cards with long-time partner Mitsubishi Motor Corp to assemble Mistubishi cars and the possibilities of engine development.
However, with the entry of DRB-Hicom, the Mitsubishi deal might be scuttled in favour of a more muscular foreign strategic partner like Volkswagen.
Meanwhile, questions also arise about Proton's upcoming launch of “P3-21A”, which is touted to be the model that will make Proton's presence felt in the global car scene. The sudden entry of DRB-Hicom would definitely have an impact on the planned launch of the new car in March.
Currently, DRB-Hicom derives almost 60% of its automotive revenue from business ventures with the national carmaker. It is also the biggest distributor of Proton cars under EON Bhd, besides Proton Edar. The group's manufacturing and engineering companies are all first-tier vendors to Proton, accounting for RM600mil to RM700mil worth of business.
No doubt synergistic gains and operational benefits abound in this link-up between DRB-Hicom and Proton but there will be questions on how Proton's current plans can gel up with DRB-Hicom's future direction.
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