Proton, VW edging closer to tie-up

Ailing national carmaker Proton and Germany's Volkswagen are close to sealing a tie-up that will likely see the German auto firm take a 51 percent stake in its key assets, a report said today.
Citing unnamed sources, The Edge Financial Daily said a new company would be created which will see Volkswagen, Europe's biggest carmaker, controlling key operations with the 51 percent stake.
Proton Holdings will hold the remaining 49 percent in the new company, which would encompass key assets including British subsidiary Lotus, as well as manufacturing, research and development, and engineering activities, the report said.
A 42.7 percent stake in Proton Holdings currently held by the government's investment arm, Khazanah Nasional, may also be taken over by state-linked conglomerate Sime Darby, The Edge reported.
The newspaper said details were expected to be finalised at a meeting underway in New York between representatives from Volkswagen, Khazanah, Sime Darby and the prime minister's office.
With Volkswagen's expertise and platforms, the new company is expected to launch new Proton models under the Malaysian carmaker's brand name while most of the existing ones will be phased out, it said.
Proton officials declined to comment on the report while Khazanah executives were not immediately available.
Proton's share price was sharply higher Thursday on the news. At the morning close, Proton was up RM0.95 or 16.24 percent at RM6.80.
Malaysia has for months been in talks with Volkswagen for an alliance that would help Proton arrest a sharp decline in market share.
A senior government official said last month that talks were also continuing with US automaker General Motors Corp.
Analysts said a deal with VW would bring no immediate relief for Proton.
In a note to clients, Hwang-DBS Vickers Research said a partnership with Volkswagen remains the preferred scenario, but "a gestation period of 18 to 24 months may be necessary in order for operational turnaround to take effect."
TA Research said a tie-up with Volkswagen is "a step forward for Proton but it will still have to endure some pain in the short term due to huge inventories and declining sales."
Prime Minister Abdullah Ahmad Badawi said on May 31 that talks with Volkswagen had failed but the next day a senior government official said the negotiations were back on.
"After the prime minister made the announcement, Volkswagen requested a final round of talks," the official told AFP at the time.
Malaysian ministers have acknowledged that Proton needs a foreign manufacturing partner which would bring the necessary expertise to help turn around the company's fortunes.
However, they have also expressed reservations about ceding control of a key national asset, although The Edge Financial Daily said such views were changing in the face of Proton's loss-making performance.
Proton last week reported larger than expected net losses of RM591.36 million for the year to March 2007.
The carmaker blamed weak sales and higher production costs for a reversal from the previous year's profit of RM46.69 million.
The government has so far missed two self-imposed deadlines to announce a partner for Proton.
AFP

tunku : GOD SAVE PROTON