DRB Hicom ... Oct09

It has put in a bid to buy 32% of Proton Holdings Bhd in hopes that ownership of the national carmaker in the hands of the private sector would help improve the entire industry.

Arguments put forward by sources close to the company are that vendors would gain from a more private sector-driven approach and that a potential tie-up between Volkswagen and Proton would also fit DRB-HICOM’s multi-partner business model. If the Government holds control of Proton, it may lose out on the big picture.

Proton is now engaged in talks with VW on a strategic partnership as DRB-HICOM and privately held Yasmin Holdings, together with the help of the Naza group and two former top executives of Proton, zero in on a controlling stake in Proton. The executives are Datuk Kisai Rahmat and Datuk Kamarulzaman Darus.

The fight for control of Proton could see the entrance of a third party – the company’s management – after Proton chairman Datuk Mohd Nadzmi Mohd Salleh gave his backing to any potential management buyout (MBO) of the national carmaker.

DRB-HICOM’s interest in Proton was sparked after the latter began talks with VW.

To do so, it had requested DRB-HICOM to back away from its own ongoing discussions of a business tie-up with VW which started after Proton called off strategic partnership talks a few years ago.

The purpose of the talks between DRB-HICOM and VW was not only to help the German maker fill a gap in its market reach, as South-East Asia was a weak spot for VW, but also to utilise the excess capacity at DRB-HICOM’s plants in Pekan by assembling a number of models.

It appears that VW was sold on DRB-HICOM’s ability to assemble cars in Pekan after seeing Mercedes-Benz S-class limousines being assembled at the plant.

Negotiations took some time but it is learnt that both parties were just a hair’s breadth away from coming to an agreement before Proton intervened to recommence strategic partnership talks some months ago.

Sources say DRB-HICOM intends to make Proton more competitive than it is currently operating at, given the vast synergies between the two companies. DRB-HICOM is a huge component supplier to Proton and a huge chunk of DRB-HICOM’s revenue is derived from Proton.

Furthermore, ownership of Proton and possibly fewer market restrictions would lead to more investments from other motor players in the country. DRB-HICOM has partnerships with a number of other vehicle makers such as Suzuki, Isuzu, Audi, Honda and Mercedes-Benz.

It is also learnt that its decision to buy a controlling stake in Proton is also not contingent upon Proton and VW sealing a deal. It will still go ahead with the acquisition.

Sources said DRB-HICOM still intended to pursue market opening avenues if it managed to snare control of Proton. The general consensus is that Proton would be forced to become more globally competitive once its ownership was out of the Government’s hands.

But Proton also needs a lot of subsidies to survive. If the Government were to parcel out ownership of Proton to private hands and continue to dish out protective incentives, others may then complain.

DRB-HICOM, under the stewardship of Tan Sri Mohd Saleh Sulong, was once the owner of Proton but sold a 26% controlling stake in the carmaker to Petronas for RM981mil in December 2000 as part of a restructuring process.

However, DRB-HICOM, under the control of Tan Sri Syed Mokhtar Al-Bukhary, had in 2006 disclosed its intent to buy a controlling stake in Proton.

Meanwhile, Proton group managing director Datuk Syed Zainal Abidin Syed Mohamed Tahir as saying that Proton expected to conclude talks with Indian carmakers on the collaboration of products and market by next year (2010).