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DRB-HICOM to buy Proton for USD$412million - Some questions to be asked

DRB-HICOM to buy Proton for USD$412million - Some questions to be asked

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DRB-HICOM has been offered to take control of automobile manufacturer Proton, again. Khazanah Nasional, the Government body which owns a majority share in Proton has agreed to sell 42.7% of Proton to DRB-HICOM for the amount of RM1.29 million (USD$412million) at around RM5.50 per share with an option for DRB-HICOM to purchase more shares pending necessary approvals. According to the press release "The proposed acquisition is expected to create business synergies and opportunities for DRB-HICOM Group and Proton to augment the localisation and local vendor programmes,".


The statement goes on saying that the group will also maintain its intention and interest to safeguard the Malaysian national car company while at the same time encourage, facilitate, grow and enhance Malaysia's national automotive industry in order to make Malaysia a preferred automotive hub capable of rivaling its neighbours. The proposed sale will also enable the Malaysian government to let the private sector run businesses without interference and also allow free market forces to happen instead of the controlled Malaysian automotive market. This in turn would mean that the Malaysian National Automotive Plan may be overhauled again to reflect this change. Grand ambitions for sure. Or is this a statement concocted for press releases.


The thing is, the Malaysian conglomerate once owned Proton a while ago and the management prior to the one running DRB-HICOM sold Proton back to the Malaysian government. And now this current group intends to take it to higher heights. Or will they bleed the company dry?


That question is hard to answer as Proton at this moment has a huge factory in Tanjung Malim, Perak that is underutilised. Proton is also widely used as a vehicle to extend 'help' to local businessmen allowing them to be vendors to Proton. This people are usually politically connected and somehow keep on supplying sub-standard parts to Proton. Which is why Proton cars sometimes have a lot of things going wrong with them. So would they kick out all the under-performing vendors and replace them with people who really care about quality?


Would the new management utilise the excess production capabilities as they do have various assembly programs with companies like Honda, Mercedes Benz, Suzuki and just recently, Volkswagen. Aside from assembling the above mentioned locally DRB-HICOM also distribute the Audi brand in Malaysia. Could this lead the way for Proton to assemble Audis locally at Proton's Tanjung Malim plant?


Now another question that would need to be thrown about is what would happen to Lotus? Proton bought Lotus sometime in 1996 and that company has basically slowly bled Proton ever since. Lotus is currently in the middle of its long term turnaround plan and questions are being asked on whether the new management has the muscle to continue with Lotus' gameplan or flog (in whole or a dilution of its shares) the performance car manufacturer to someone else. It is quite worrying as recently car companies with a bit of heritage and history has ended up getting screwed or very dead after being taken over by another. Think Saab in this context people. Furthermore, it would be utterly boring if I visited the Proton Center Of Excellence in Shah Alam and they do not have some Lotuses there ever again.


So the only thing we can hope for is that DRB-HICOM isn't going to conduct one of those corporate exercises where personal profit is the bottom line. Another question that may need to be asked is whether the current Managing Director, Syed Zainal Abidin will continue running the company. He has been doing a decent job over at Proton and has been instrumental in bringing up the name locally. Before he came along thing were much worse. Proton were actually building cars that even Malaysians weren't one bit proud of owning. At least now Proton cars may still be their choice by force but at least it isn't crap.


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