VW, Proton Nearing Partnership Agreement

Anthony Fontanelle
July 25, 2007

Proton and Volkswagen have moved a step closer to a partnership deal after recent talks, a Malaysian newspaper reported on Saturday, reported Reuters.

Shares of Proton Holdings Bhd., the unprofitable Malaysian carmaker, rose on a report that the Volkswagen AG may have agreed to share technology with the company and to buy a stake in its manufacturing unit, reported Angus Whitley of Bloomberg.

Proton has been struggling with an increasingly declining market share in Malaysia due to close auto competition. It has been unable to make up the underperformance through exports. This is why the Malaysian carmaker is finding ways to cope. And VW wheels could serve as the key element to move on.

After the Edge magazine said that VW may pay several hundred million ringgit and supply vehicle platforms as part of an accord, Proton stock climbed as much as 5.2 percent. VW, Europe's biggest carmaker, will own 51 percent of a new company that will acquire Proton's manufacturing arm, said the Edge financial weekly.

Under the new agreement, Proton will control its domestic distribution network while Volkswagen will handle international distribution, the Edge said, quoting sources who spoke on condition of anonymity. “It is also understood that VW may have agreed to pay some cash for its 51 percent equity in the new company that will own key assets of Proton,” the paper reported.

Meanwhile, state investment arm Khazanah Nasional Bhd, which owns 43 percent of Proton, is in talks with Volkswagen and the largest American automaker General Motors Corp. to sell some of its stake in the loss-making company. The balance of the equity will be satisfied with injection of technology and platforms.

Rafidah Aziz, Malaysia's trade minister said Wednesday the country wants to sell its stake in Proton but would not act hastily in the matter. “What we are looking for now is for somebody to buy the government-owned shares and that somebody should be able to provide the right kind of technology,” Aziz said in Tokyo.

“The pact seems to be just waiting for a formal conclusion,” said Mohd Hanafi, an analyst at Alliance Research Sdn. in Kuala Lumpur with a “buy' rating on Proton stock. “Any sort of new development which is positive would definitely have an impact on the share price.'

According to estimates by Hwang-DBS Vickers Research Sdn, control of Proton's carmaking division may cost 900 million ringgit or $263 million. The state-run carmaker needs an equal to help produce fresh product lines and turn around declining sales.

Mohd Asuki Abas, a spokesman for Khazanah Nasional Bhd., declined to comment on the report. Khazanah, a Malaysian government investment unit, owns 43 percent of Proton. Faridah Idris, a spokeswoman for Proton, said that she was unable to comment immediately, said Bloomberg.

Proton shares increased about 30 sen to 6.10 ringgit and traded at 5.90 ringgit at 10:57 a.m. in Kuala Lumpur. The stock has fallen eleven percent this year compared with a 26 percent gain by the Kuala Lumpur Composite Index.

According to the deal, Proton will control domestic vehicle distribution and VW will oversee international sales, the magazine said. Khazanah Managing Director Azman Mokhtar said on June 26 that he plans to find a partner for Proton before the end of the year.

A tie-up between Proton and GM is unlikely because Proton sells vehicles in Iran, the Edge said. It added GM stipulated that Proton must pull out of Iran, a condition that would not be met.

The Wolfsburg, Germany-based carmaker, forms the core of the Volkswagen Group. It is the world's fourth largest carmaker after the Toyota Motor Corp., GM and the Ford Motor Co, respectively.

Source:  Amazines.com