Proton foreign tie-up in Feb?
ANALYSTS expect the partnership between Proton Holdings Bhd and a foreign car manufacturer to be sealed soon and that this would have a positive impact on Proton's bottom line in the longer term.
AmResearch executive director and head of research Gan Kim Khoon said: “We expect an announcement on the impending merger soon, possibly in February.”
Gan said the conclusion to the national car manufacturer's search for a partner had been long overdue and that talks with potential candidates should be at the advanced stage.
To date, three foreign automakers and two local companies have expressed interest in Proton.
They are US car giant General Motors (GM), Volkswagen, PSA Peugeot Citroen, DRB-Hicom Bhd and the Naza group.
Most analysts believe GM and Volkswagen are the two frontrunners in sealing the deal.
Gan said GM and Volkswagen have the upper hand because of their strong brand name as carmakers as well as international presence and aggressive expansion plans, especially in the fast growing Asian markets.
However, he said, “It's difficult to say which automaker will seal the deal with Proton.” He noted that both the foreign car manufacturers (GM and Volkswagen) had their strengths and weaknesses.
Gan said Proton could not afford to wait much longer for a partner, as the national car manufacturer had been under-performing and losing market share for some time.
“A partnership with a foreign automaker will definitely have a positive impact on Proton,” Gan said, pointing to the recent increase in Proton's share price – reflecting investors' confidence – on news that GM had expressed interest in the national car manufacturer.
Proton's share price jumped 10% this month to a 12-month high of RM7.05 after newspapers reported GM had shown interest in the company.
An AmResearch auto analyst agrees with Gan that the potential partner would likely be foreign.
He said PSA Peugeot Citroen as a foreign partner would likely be the underdog, as the company was not known for its aggressive mergers or acquisition, unlike GM.
The analyst said PSA Peugeot Citroen would likely to offer a deal that was “at arm's length” to Proton.
In October 2002, General Motors completed a US$1.17bil acquisition of factories and other assets from the insolvent Daewoo Motor of South Korea through a joint venture it controls.
The venture, GM Daewoo Auto & Technology, took over two of Daewoo Motor's assembly plants in South Korea, one in Vietnam and later a third plant in South Korea. Bloomberg recently reported that GM might offer RM10 per Proton share.
The analyst said it was clear GM was planning to make Malaysia the Asian platform to penetrate new markets in the region.
“This move by GM is very positive for Proton,” he said.
“We also feel local companies might not have the clout to bring Proton's performance to a globally competitive level faster than foreign contenders,” he said.
The analyst said it was well known that foreign automakers were eyeing Proton for its manufacturing facility in Tanjung Malim, Perak - Proton's prized possession.
“But how exactly will foreigners take equity in or management of the manufacturing facility is the million dollar question,” he said.
“Will the manufacturing facility be 'acquired' at the holding level or subsidiary level? Also, what identity will Proton have upon merger/acquisition or partnership? Will it still have a national identity or a foreign one?”
The analyst said Khazanah Nasional Bhd, Proton's 43% stakeholder, and the Government would decide the final outcome of Proton’s fate.
A CIMB Securities analyst said the best partner was not necessarily the one that offered the highest price.
“Proton needs to find a partner that meets its business objectives over the next 10 years.”
A foreign auto analyst said ultimately Proton had to look at the best value proposition that the potential partners brought to the company for its long-term survival.
“Besides agreeing on the equity, Proton has to critically assess the partner's strength in terms of technology transfer, physical infrastructure, worldwide network and global brand presence,” she stressed.
On whether Proton would find a suitable partner, the foreign analyst said: “Failure is not an option. Proton needs a partner soon. It cannot afford to continue on its own.”
The foreign analyst said she was also optimistic that a suitable partner would be found soon.
For the second quarter ended Sept 30, 2006, Proton's losses widened to RM250mil, compared with RM154mil in the corresponding quarter a year earlier.
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