KUALA LUMPUR: Khazanah Nasional Bhd is divesting its 42.72% stake in Proton Holdings Bhd to DRB-Hicom Bhd via a conditional sale at RM5.50 per share or RM1.29 billion cash.
Once the deal is completed, DRB-Hicom will be obliged to undertake a mandatory general offer (MGO) for the remaining Proton shares at the same price. This will result in the diversified company having to fork out an additional RM1.73 billion for the remaining 57.28% or 314.48 million shares not under Khazanah’s control.
Thus, the price tag for the takeover of Proton could be just over RM3 billion.
This is the second asset that DRB-Hicom is taking over from Khazanah in under a year after the former won the bid for a 32.2% controlling stake in Pos Malaysia Bhd last April.
The conditional sale which was announced yesterday afternoon confirmed a report by The Edge Financial Daily, citing industry sources, which said DRB-Hicom was understood to have secured Khazanah’s 42.72% stake in Proton, with only a few minor issues left to seal the deal.
Khazanah managing director Tan Sri Azman Mokhtar said it is another milestone in the sovereign wealth fund’s strategic divestment programme as it represents the largest in size to date.
“The divestment is a further example of public-private partnerships, whereby strategic divestments are made with the aim of putting government-linked companies (GLC) on a stronger and more competitive footing, and at the same time enhancing private sector participation and building the entrepreneurial capacity of Malaysian businesses in key economic sectors,” he said.
How minority shareholders react remains to be seen, with the offer price more than double 2011’s lowest level of RM2.57.
The national carmaker’s shares had been trading at a five-year average of RM3.95 before the stock price began to climb from RM2.70 on Nov 14 to as high as RM5.46 last Thursday.
While minority shareholders may be happy to cash out at a gain of about 93% since November, Khazanah will be selling its assets at almost half Proton’s book value of RM9.81 net assets per share.
Khazanah will also incur a “real” loss on the disposal after having acquired its stake in Proton for roughly RM8 per share. As Malaysia’s sovereign fund, the loss is indirectly borne by the general public. At face value, the disposal translates into a loss of about half a billion ringgit.
However, Khazanah’s holding cost is understood to be in the RM5.50 band after taking into consideration Proton’s dividend payments over the years.
Nevertheless, the general consensus is that Khazanah could have wrangled for a better price.
“Khazanah could have extracted a better price from DRB-Hicom. If DRB-Hicom did not have enough money to conduct a GO at a higher price, the diversified company could always have settled for a 30% stake which would still grant it control of Proton,” said an observer.
He added that Khazanah should not be in a weak negotiating position as there were other contenders, and the sovereign wealth fund had previously indicated that it was in no hurry to dispose of the stake.
A local analyst pointed out that the deal is definitely good for DRB-Hicom. “As DRB can flip some of the assets to Volkswagen, it can also flip Lotus which has a very strong brand recognition,” he said.
DRB-Hicom has an agreement with Volkswagen AG, which includes the contract assembly and sales of certain marques at DRB’s plant in Pekan, Pahang.
The analyst also questioned why Khazanah did not restructure Proton to place the national carmaker on a stronger footing. “Khazanah could have created a much better value from its assets if it had sold Lotus and done the deal with Volkswagen instead of introducing a middle man.”
Talks between Volkswagen and Proton fell through on a few occasions previously due to the inability to come to an agreement. Industry sources revealed that Volkswagen could have used some of Proton’s unutilised production space in its Tanjung Malim plant to manufacture its vehicles.
The Tanjung Malim plant has a production capacity of 150,000 units per annum which can be expanded to 250,000, but for FY11 ended March 31, the plant only produced about 57,700 units.
Observers noted that Proton should consolidate its production by moving its Shah Alam operations to the under-utilised Tanjung Malim plant which boasts more high-tech and automated facilities.
It would not be unreasonable to assume that DRB-Hicom may do just that.
Besides the savings in costs from operating a single plant in a single location and maximising the use of Proton’s production facilities, the move would also free up prime land that the Shah Alam plant is currently sitting on.
The Shah Alam land and buildings are valued at RM165 million but this is probably worth many times as they were last re-valued almost 30 years ago in 1983 and is sitting in a prime location.
Property players said Proton’s Shah Alam land could have a gross development value in excess of RM1 billion.
Elsewhere, Proton has three other pieces of land in the Petaling district worth a total of RM114.2 million, including buildings which were last re-valued about 20 years ago.
Likewise, Proton Cars (UK) Ltd has land and a building worth RM6.37 million in Bristol, England, which was last re-valued in 1994 and subsidiary Lotus Cars Ltd’s production facilities in Norfolk, England, are valued at RM56.68 million as of 1968.
“I think that Khazanah has always wanted to sell its stake in Proton. Proton and MAS make up for 2% to 3% of Khazanah’s holdings, but account for 30% of its problems. Of course, Khazanah’s hands have always been tied. The government has a social agenda when it comes to their (Proton and MAS) ownership and management,” noted an analyst.
DRB-Hicom’s funding for the RM1.291 billion acquisition will likely be sourced from several major investment banks. Among them will probably be Malayan Banking Bhd which will handle the merchant banking requirements for DRB-Hicom.
Trading in Proton’s shares was suspended yesterday pending the announcement. The stock traded and closed at RM5.18 last Friday.
This article appeared in The Edge Financial Daily, January 17, 2012.
Once the deal is completed, DRB-Hicom will be obliged to undertake a mandatory general offer (MGO) for the remaining Proton shares at the same price. This will result in the diversified company having to fork out an additional RM1.73 billion for the remaining 57.28% or 314.48 million shares not under Khazanah’s control.
Thus, the price tag for the takeover of Proton could be just over RM3 billion.
This is the second asset that DRB-Hicom is taking over from Khazanah in under a year after the former won the bid for a 32.2% controlling stake in Pos Malaysia Bhd last April.
The conditional sale which was announced yesterday afternoon confirmed a report by The Edge Financial Daily, citing industry sources, which said DRB-Hicom was understood to have secured Khazanah’s 42.72% stake in Proton, with only a few minor issues left to seal the deal.
Khazanah managing director Tan Sri Azman Mokhtar said it is another milestone in the sovereign wealth fund’s strategic divestment programme as it represents the largest in size to date.
“The divestment is a further example of public-private partnerships, whereby strategic divestments are made with the aim of putting government-linked companies (GLC) on a stronger and more competitive footing, and at the same time enhancing private sector participation and building the entrepreneurial capacity of Malaysian businesses in key economic sectors,” he said.
The Proton stake is the second asset that DRB-Hicom is taking over from Khazanah in under a year after the former won a controlling stake in Pos Malaysia last April.
How minority shareholders react remains to be seen, with the offer price more than double 2011’s lowest level of RM2.57.
The national carmaker’s shares had been trading at a five-year average of RM3.95 before the stock price began to climb from RM2.70 on Nov 14 to as high as RM5.46 last Thursday.
While minority shareholders may be happy to cash out at a gain of about 93% since November, Khazanah will be selling its assets at almost half Proton’s book value of RM9.81 net assets per share.
Khazanah will also incur a “real” loss on the disposal after having acquired its stake in Proton for roughly RM8 per share. As Malaysia’s sovereign fund, the loss is indirectly borne by the general public. At face value, the disposal translates into a loss of about half a billion ringgit.
However, Khazanah’s holding cost is understood to be in the RM5.50 band after taking into consideration Proton’s dividend payments over the years.
Nevertheless, the general consensus is that Khazanah could have wrangled for a better price.
“Khazanah could have extracted a better price from DRB-Hicom. If DRB-Hicom did not have enough money to conduct a GO at a higher price, the diversified company could always have settled for a 30% stake which would still grant it control of Proton,” said an observer.
He added that Khazanah should not be in a weak negotiating position as there were other contenders, and the sovereign wealth fund had previously indicated that it was in no hurry to dispose of the stake.
A local analyst pointed out that the deal is definitely good for DRB-Hicom. “As DRB can flip some of the assets to Volkswagen, it can also flip Lotus which has a very strong brand recognition,” he said.
DRB-Hicom has an agreement with Volkswagen AG, which includes the contract assembly and sales of certain marques at DRB’s plant in Pekan, Pahang.
The analyst also questioned why Khazanah did not restructure Proton to place the national carmaker on a stronger footing. “Khazanah could have created a much better value from its assets if it had sold Lotus and done the deal with Volkswagen instead of introducing a middle man.”
Talks between Volkswagen and Proton fell through on a few occasions previously due to the inability to come to an agreement. Industry sources revealed that Volkswagen could have used some of Proton’s unutilised production space in its Tanjung Malim plant to manufacture its vehicles.
The Tanjung Malim plant has a production capacity of 150,000 units per annum which can be expanded to 250,000, but for FY11 ended March 31, the plant only produced about 57,700 units.
Observers noted that Proton should consolidate its production by moving its Shah Alam operations to the under-utilised Tanjung Malim plant which boasts more high-tech and automated facilities.
It would not be unreasonable to assume that DRB-Hicom may do just that.
Besides the savings in costs from operating a single plant in a single location and maximising the use of Proton’s production facilities, the move would also free up prime land that the Shah Alam plant is currently sitting on.
The Shah Alam land and buildings are valued at RM165 million but this is probably worth many times as they were last re-valued almost 30 years ago in 1983 and is sitting in a prime location.
Property players said Proton’s Shah Alam land could have a gross development value in excess of RM1 billion.
Elsewhere, Proton has three other pieces of land in the Petaling district worth a total of RM114.2 million, including buildings which were last re-valued about 20 years ago.
Likewise, Proton Cars (UK) Ltd has land and a building worth RM6.37 million in Bristol, England, which was last re-valued in 1994 and subsidiary Lotus Cars Ltd’s production facilities in Norfolk, England, are valued at RM56.68 million as of 1968.
“I think that Khazanah has always wanted to sell its stake in Proton. Proton and MAS make up for 2% to 3% of Khazanah’s holdings, but account for 30% of its problems. Of course, Khazanah’s hands have always been tied. The government has a social agenda when it comes to their (Proton and MAS) ownership and management,” noted an analyst.
DRB-Hicom’s funding for the RM1.291 billion acquisition will likely be sourced from several major investment banks. Among them will probably be Malayan Banking Bhd which will handle the merchant banking requirements for DRB-Hicom.
Trading in Proton’s shares was suspended yesterday pending the announcement. The stock traded and closed at RM5.18 last Friday.
This article appeared in The Edge Financial Daily, January 17, 2012.
