Proton caught unaware
YEOW POOI LING
Saturday January 14, 2006
The Star

PETALING JAYA: Proton Holdings Bhd was surprised by Volkswagen AG's decision to abort plans for an alliance with the national carmaker but investors turned cautious on the stock and sent Proton's share to its lowest level in over four years. 

Proton said Volkswagen had requested for more time to decide on the possibility of collaboration in alternate forms and that a mid-January 2006 timeline for their response was agreed by both parties. 

“It was also agreed that given the nature of the proposal and the listed status of the parties involved, any decision to conclude negotiations would only be announced either concurrently or through a joint statement,'' said Proton in a statement to Bursa Malaysia yesterday. 

Prime Minister Datuk Seri Abdullah Ahmad Badawi says he has been informed about the status of the proposed strategic collaboration between Volkswagen and Proton Holdings Bhd, Bernama reported. 

Abdullah said he had received information concerning Volkswagen decision to scrap the plans to cooperate. 

“I'd rather prefer that Proton itself issue a statement before I make any comment,” he told reporters upon arrival from a visit to Padang, Indonesia, at the Royal Malaysian Air Force base, in Subang yesterday. 

Asked whether Proton would collaborate with other car makers following the decision by Volkswagen, he said: “For now I do not want to speculate. Let them issue a statement first. They have told me what had taken place,” he said.  

Proton told Bursa that it was surprised by Volkswagen's decision to end plans for an alliance and although it welcomed a conclusion to the long-drawn negotiations, it had not yet been officially informed by Volkswagen of their position and decision. In the statement, Proton said an agreement with Volkswagen to explore a collaboration was entered into in October 2004, with the intention of establishing a close working relationship between both parties. It said the proposed collaboration would enable Volkswagen to participate, both in the Malaysian and Asean markets, more effectively and was not a situation of one party supporting the other.  

“Over time, however, it has become apparent that Volkswagen seeks to exercise control over Proton's facilities and future development. This would have compromised Proton's independence and would be highly inappropriate for Malaysia's national car company,'' Proton added. 

On Thursday, the German-based and world's fourth largest carmaker told investors in the US it had scrapped plans to cooperate with Proton to build and sell Volkswagen brand cars for the Malaysian market. However, it would work with Proton on a project-to-project basis to “support” Proton. 

Although no official correspondence of Volkswagen's decision was communicated to Proton, investors reacted negatively to the news. 

Proton's share price dived 11% to RM5.65, off its intra-day low of RM5.10, on a volume of 7.6 million shares. It was the lowest level in four years since Nov 15, 2001, and the stock was the top loser.  

Mayban Securities said that the “strong negative knee-jerk” reaction from investors was expected.  

In a report, it said concerns were mounting on the national carmaker's ability to compete in the increasingly liberalised market without Volkswagen as the strategic partner. 

“Proton would unlikely be able to access Volkswagen's established global distribution and supplier network as per a strategic tie-up,” the research house said.  

Meanwhile, Bernama reports that Volkswagen's plans to relegate Proton into a mass assembler of completely-knocked-down Volkswagen cars and its insistence on taking a controlling stake in the national carmaker have wrecked plans for the two automakers to strike a strategic tie up, quoting people familiar with the negotiations. 

“It was simply not acceptable to Proton to be downgraded from being a full-fledged auto manufacturer to a mere assembler of Volkswagen cars. 

“This would have meant the end of Malaysia's ability to develop and manufacture cars,” said an investment banker. 

The investment banker said that over time, it became apparent Volkswagen wanted to exercise control over Proton, including the running of its finance, management, product development and manufacturing operations. 

Source: http://biz.thestar.com.my/news/story.asp?file=/2006/1/14/business/13108434&sec=business