Malaysian carmaker Proton once again in talks for stake sale

10 November 2006

Malaysia''s state-run carmaker Proton is once again in talks for a stake sale to a foreign car firm. Earlier in January its negotiations with VW, Europe''s largest carmaker, failed after months of negotiations.

This time Peugeot and, once again, Volkswagen are among those with whom it has held discussions. In January 2006, Volkswagen had dropped plans to invest in Proton after it refused to relinquish managerial control.

The Malaysian government owns a 42.7-stake in Proton through its investment arm Khazanah Nasional. During its earlier negotiations with Volkswagen, the government believed to be unwilling to relinquish its controlling share, which gives it the power to veto any plan regarding the company.

However, VW had had wanted to buy a significant stake and a free decision-making rights in the management of Proton, which was opposed by Proton''s senior management.

This time round, however, the government has said that letting an outsider acquire a 51-per cent stake in manufacturing operations. This would enable Proton to manage the sales and distribution, while an outside partner would provide manufacturing expertise.

While Volkswagen and Peugeot want to tap into the growing Asian market, Proton, needs access to new technology to protect its market share. It has been facing stiff competition from other Asian — Japanese and South Korean — rivals, which has seen its domestic market share fall from 57 per cent in the early 1990s to 30 per cent.