MALAYSIA: Proton shares jump as VW stake speculation swirls

By just-auto.com editorial team | 29 July 2005

Shares of Malaysian national car maker Proton jumped as much as 8% on Friday on speculation that Volkswagen will buy up to a 30% stake in the struggling automaker, the Associated Press (AP) reported.

AP said that Khazanah Nasional Bhd., the government's investment arm that owns 42.7% of Proton, is in talks with the German automaker to sell up to 30% of the Malaysian company, according to a person familiar with the talks.

"The deal could be worth 10 ringgit a share," or $2.67, the person reportedly said on condition of anonymity due to the sensitive nature of the deal. At that price, the stake will cost Volkswagen AG some 1.65 billion Malaysian ringgit, or $US440 million.

The deal could come with management control of Proton, the person told the Associated Press.

Khazanah reportedly confirmed in a statement that discussions were being held on Proton's "proposed alliance with Volkswagen" but said it "does not have any plans at this point to divest all or part of its existing stake in Proton."

However, it said it is seeking ways to enhance shareholder value and return on investment, AP noted.

The report said investors bid up Proton's stock on hopes that Volkswagen would help the company's ailing fortunes. Proton shares surged as high as 8.1% to 10 ringgit when the market opened Friday before falling back to 9.25 ringgit, up 1.1% from Thursday.

According to the Associated Press, it wasn't immediately clear how a deal might be structured, but it is likely that Khazanah may want to retain a "golden share" in the company. Such shares, common in state-linked companies, give the government veto powers over key strategic decisions.

AP added that the possible equity sale followed Monday's removal of embattled chief executive Mahaleel Ariff, who has been at odds for months with Proton's board of directors over strategic issues such as the prospect of giving up majority control to a multinational manufacturer to counter foreign competition.

The talks between Khazanah and Volkswagen underscores a government plan to reform state-owned companies and cease control of national firms facing competition from overseas, the Associated Press said.

A deal with Volkswagen would give Proton access to German technical and management know-how. It would be "highly positive" for Proton because it doesn't have scale to compete on a global basis, Edward Ong, auto analyst at Macquarie Securities, told AP.

Volkswagen, meanwhile, would get an opportunity to grow its market share in Asia, which last year accounted for just 6.6% of its 5.1 million sales, Ong added. Europe's No. 1 automaker has plants in China and India, and by buying into Proton, it would get access to plants in Malaysia capable of making up to 380,000 cars a year that can be increased to 1 million units.

The Associated Press noted that Proton and Volkswagen last year agreed to work together, without committing to an equity relationship. But Mahaleel's removal paved the way for new leadership in the beleaguered automaker.