KUALA LUMPUR: Speculation has been rife recently that Khazanah Nasional Bhd is looking to dispose of its 42.74% stake in Proton Holdings Bhd. The Edge weekly reported this week that Khazanah is putting out feelers for potential bidders for its shares in the national automaker.
The Edge reported that Khazanah had approached Sime Darby Motors, Naza Group, Hyundai-Berjaya Sdn Bhd, DRB-Hicom Bhd and UMW Holdings Bhd. However, it appears that DRB-Hicom is the only one interested in Khazanah’s stake. There is also talk of a management buyout (MBO).
While Khazanah has chosen not to comment on the speculation, some say there is no smoke without fire. Proton gained 24.6% or 89 sen yesterday to close at RM4.50 with 20.16 million shares done.
However, the question that arises is this: Why is Khazanah looking to sell its stake in Proton now, when it could have sold it at a much higher price several years ago, or even earlier this year?
Back then, there were several players interested in acquiring Proton. One notable candidate was global giant automaker Volkwagen AG, which has the expertise, potential synergy and deep pockets.
Now it appears that DRB-Hicom may be the only interested party among the local players.
The question for Khazanah is: would this be a buyer’s, rather than seller’s market? That could make all the difference in terms of pricing.
Speculation about Proton is nothing new. Last month, rumours re-emerged that Tan Sri Syed Mokhtar Al-Bukhary’s DRB-Hicom and Naza were looking to buy Proton. There was also talk of interested parties buying Lotus Group.
While it is known that Khazanah has been looking at exiting Proton, the timing could be questionable.
As early as 2006, Khazanah was in talks with Volkwagen AG, the European auto giant, to sell its Proton stake. However, talks broke down in late 2007, which some had attributed to nationalistic interest.
In 2009, DRB-Hicom approached Proton and submitted a bid to buy 32% of Proton shares. Again, the talks failed for reasons unknown.
The pricing is unclear, although Khazanah is believed to have bought the shares at above the RM8 mark.
Proton is currently trading below its book value per share of RM9.81 and net tangible assets per share of RM7.62.
But observers are asking why Khazanah did not sell the company much earlier, when there was more interest.
Even as early as the start of this year, Proton’s shares traded around the RM4.80 level before plummeting to RM2.55 in early October as it embarked on a turnaround plan for Lotus Group. And what positive proposition does the acquisition bring to Proton?
“It does not make sense for an M&A as things are looking pretty grim for Proton. The Lotus Group is expected to bleed for the next two to three years. There is also no value proposition for DRB-Hicom to purchase the stake. DRB-Hicom has already invested heavily in its Pekan plant. It would have bought the stake much earlier if it wanted to utilise Proton’s spare capacity in Tanjung Malim,” said an auto analyst.
He also questioned the value propositions that DRB-Hicom could bring to Proton. “Unless DRB-Hicom is assembling new models, it does not need Proton’s capacity. There is really little upside for DRB-Hicom to buy the stake,” he said.
The analyst also noted that the stake purchase could require a general offer (GO) and DRB-Hicom’s minority shareholders could react negatively to paying such a high premium for Proton shares.
While Proton’s current plant could be its most attractive asset, observers note that the company would have been more attractive earlier — as the turnaround plans for Lotus have bled Proton’s books.
Proton’s net profit fell 76% to RM15.6 million for 2QFY12 ended Sept 30, 2011 from RM65.9 million a year earlier due to higher expenses incurred by Lotus Group. Likewise, its 1HFY12 earnings took a sharp 86.6% fall to RM20.1 million from RM150 million a year earlier.
As at Sept 30, Proton had RM1.31 billion in cash, bank balances and deposits. Its short-term and long-term borrowings grew 158% to RM959.1 million compared with RM371.2 million six months earlier. Proton is in the second year of a five-year turnaround plan for Lotus Group that costs £480 million (RM2.35 billion).
“It is anyone’s guess why Khazanah is inviting bids now,” said the auto analyst. “Also, Proton’s current share price has already factored in the premium. I would advise retail investors to be careful as anything could happen.”
This article appeared in The Edge Financial Daily, December 6, 2011.
The Edge reported that Khazanah had approached Sime Darby Motors, Naza Group, Hyundai-Berjaya Sdn Bhd, DRB-Hicom Bhd and UMW Holdings Bhd. However, it appears that DRB-Hicom is the only one interested in Khazanah’s stake. There is also talk of a management buyout (MBO).
While Khazanah has chosen not to comment on the speculation, some say there is no smoke without fire. Proton gained 24.6% or 89 sen yesterday to close at RM4.50 with 20.16 million shares done.
However, the question that arises is this: Why is Khazanah looking to sell its stake in Proton now, when it could have sold it at a much higher price several years ago, or even earlier this year?
Back then, there were several players interested in acquiring Proton. One notable candidate was global giant automaker Volkwagen AG, which has the expertise, potential synergy and deep pockets.
Now it appears that DRB-Hicom may be the only interested party among the local players.
The question for Khazanah is: would this be a buyer’s, rather than seller’s market? That could make all the difference in terms of pricing.
Speculation about Proton is nothing new. Last month, rumours re-emerged that Tan Sri Syed Mokhtar Al-Bukhary’s DRB-Hicom and Naza were looking to buy Proton. There was also talk of interested parties buying Lotus Group.
While it is known that Khazanah has been looking at exiting Proton, the timing could be questionable.
As early as 2006, Khazanah was in talks with Volkwagen AG, the European auto giant, to sell its Proton stake. However, talks broke down in late 2007, which some had attributed to nationalistic interest.
In 2009, DRB-Hicom approached Proton and submitted a bid to buy 32% of Proton shares. Again, the talks failed for reasons unknown.
The pricing is unclear, although Khazanah is believed to have bought the shares at above the RM8 mark.
Proton is currently trading below its book value per share of RM9.81 and net tangible assets per share of RM7.62.
But observers are asking why Khazanah did not sell the company much earlier, when there was more interest.
Even as early as the start of this year, Proton’s shares traded around the RM4.80 level before plummeting to RM2.55 in early October as it embarked on a turnaround plan for Lotus Group. And what positive proposition does the acquisition bring to Proton?
“It does not make sense for an M&A as things are looking pretty grim for Proton. The Lotus Group is expected to bleed for the next two to three years. There is also no value proposition for DRB-Hicom to purchase the stake. DRB-Hicom has already invested heavily in its Pekan plant. It would have bought the stake much earlier if it wanted to utilise Proton’s spare capacity in Tanjung Malim,” said an auto analyst.
He also questioned the value propositions that DRB-Hicom could bring to Proton. “Unless DRB-Hicom is assembling new models, it does not need Proton’s capacity. There is really little upside for DRB-Hicom to buy the stake,” he said.
The analyst also noted that the stake purchase could require a general offer (GO) and DRB-Hicom’s minority shareholders could react negatively to paying such a high premium for Proton shares.
While Proton’s current plant could be its most attractive asset, observers note that the company would have been more attractive earlier — as the turnaround plans for Lotus have bled Proton’s books.
Proton’s net profit fell 76% to RM15.6 million for 2QFY12 ended Sept 30, 2011 from RM65.9 million a year earlier due to higher expenses incurred by Lotus Group. Likewise, its 1HFY12 earnings took a sharp 86.6% fall to RM20.1 million from RM150 million a year earlier.
As at Sept 30, Proton had RM1.31 billion in cash, bank balances and deposits. Its short-term and long-term borrowings grew 158% to RM959.1 million compared with RM371.2 million six months earlier. Proton is in the second year of a five-year turnaround plan for Lotus Group that costs £480 million (RM2.35 billion).
“It is anyone’s guess why Khazanah is inviting bids now,” said the auto analyst. “Also, Proton’s current share price has already factored in the premium. I would advise retail investors to be careful as anything could happen.”
This article appeared in The Edge Financial Daily, December 6, 2011.
