VW's Competition Bowing out? A Sign of Things to Come?

August 9, 2005

by wallabyguy (Robert Konick)

In a striking announcement, Sime Darby Bhd has announced that they will not be competing with VW to acquire a substantial interest in Proton from Khazanah Nasional Bhd.. Sime Darby was favored by the recently ousted Proton CEO, Mahaleel Ariff. Their acquisition of Proton would have kept the manufacturer under Malaysian control which has been a hot topic of discussion in recent months as foreign suitors have expressed interest in the ailing car manufacturer.

Sime Darby is one of Malaysia's largest holding company’s. It holds interest in the Malaysian assets of companies like Continental AG, Hyundai and Hertz. Among their holdings, are various automotive parts manufacturing assets, making the acquisition of a manufacturer like Proton a logical next step.

In an related announcement, Hyundai also denied any current interest in purchasing Proton.

It appears as though Proton’s board has won over their opponents and gained momentum in their attempt to sell to Volkswagen AG. Sime Darby Bhd’s announcement matched with Mahaleel Ariff’s removal, clears the way for the takeover by the German manufacturer. The last sticking point is rumored to be Volkswagen’s desire to have full managerial rights over Proton and it’s holdings. Such power would remove Malaysian input and move all decision back to Wolfsberg.

Such a transition would be radical for a Malaysian company. The Malaysian government has tried to keep control of it’s domestic companies and manage foreign investment. However, as tariffs and duties have been eased in recent years, the domestic companies have not been able to compete. Even offering the most affordable automotive product line in Malaysia, Proton has seen it’s domestic share of the market drop from 60% in 2002 to under 44% in 2004.

VW sees Proton as a quick way to gain access to the Asian marketplace. VW currently lags behind it competitors in establishing manufacturing facilities and unique product lines to serve burgeoning markets like Malaysia and China.

It is expected that an official announcement naming Volkswagen AG as the new controlling majority stock holder will be in short order.