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Geely bidding to acquire Proton

Geely Holding Group is in the process and lead of bidding to acquire at least a 51 percent stake in Malaysian carmaker Proton Holdings Bhd, according to a Reuters report citing people familiar with the matter.

Geely is expected to offer Proton some of the latest vehicle technologies it has developed with Volvo Cars, which is 100 percent owned by the Chinese automaker, but it is not clear whether Geely will offer cash for the stake, according to the report.

Geely is competing with France’s PSA Groups, both of which are reportedly in discussions with Proton’s owner DRB-Hicom Bhd, one of Malaysia’s leading conglomerates who acquired Proton in 2012. Japan’s Suzuki Motor Corp. reportedly has backed out of discussions.

DRB-Hicom said on February 15 in an official statement that it was waiting for prospective foreign car makers to submit bids for a strategic partnership and is going through the critical process of identifying the ideal foreign strategic partner (FSP), and an announcement of the decision is forthcoming before the end of June.

 

DRB-Hicom and Proton

DRB-HICOM, according to its corporate website, was established following a merger between Heavy Industries Corp. of Malaysia Bhd (HICOM) and Diversified Resources Bhd (DRB) in 2000. HICOM was incorporated in 1980 to lead the country’s nationalization drive and was instrumental in the development of the National Car Project while DRB was the developer of Malaysia’s first national motorcycle and Malaysian-made trucks.

After the Group’s acquisition by Etika Strategi Sdn Bhd in 2005 and led by a new management team, its businesses were rationalized into three core sectors in the following year: automotive, services and property, asset and construction.

With the acquisition of Proton in 2012, DRB-Hicom solidified its leadership position as one of the most comprehensive and integrated automotive operations in Malaysia. Its businesses cover the whole automotive ecosystem, ranging from vehicle design and development, manufacturing of automotive components, vehicle assembly, inspection and distribution, to sales and aftersales service. The Group also assembles and distributes motorcycles, commercial vehicles, defense vehicles and customized vehicles such as ambulances. The marques assembled or distributed by the Group include top global brands such as Audi, Honda, Isuzu, Volkswagen, Mitsubishi, Suzuki and Mercedes-Benz.

Proton, on the other hand, is Malaysia’s largest manufacturer of automobiles and the only full-fledged automotive OEM in Southeast Asia. It is headquartered in Shah Alam, Selangor with its manufacturing plants both in Shah Alam and Tanjung Malim, Perak. Incorporated on May 7, 1983, Proton pioneered Malaysia’s venture into the heavy industries. Its business activities span throughout the whole automotive value chain encompassing vehicle engineering, R&D, manufacturing, distribution, sales, aftersales services as well as financing.

A key brand in Proton’s portfolio is the world-renowned Lotus sports car brand, which Proton acquired in 1996. Through Lotus, Proton provides comprehensive and versatile consultancy services to many of the world’s OEMs and Tier 1 suppliers. Today, Group Lotus is organized into two business divisions: Lotus Cars focuses on sales of world-class, prestigious, high-performance sports cars, whilst Lotus Engineering provides engineering solutions for automotive manufacturers and suppliers.

 

GoldStar Lotus JV passes local environmental assessment

The fact that Proton owns Lotus through Lotus Advance Technologies Sdn Bhd, which itself is wholly-owned by Proton, is where it gets interesting for Geely.

In early February, the Fujian Provincial Environmental Protection Bureau approved the environmental assessment report of the first-phase project of the Goldstar Lotus Automobile Co., Ltd., a joint venture that entered into contract nearly two years ago in April 2015.

According to the document released by the Fujian Provincial Environmental Protection Bureau, the JV will be based inside the Jinjing Park in Jinjiang, Fujian Province and has a proposed double-shift annual production of 100,000 compact SUVs and 200,000 2.0L gasoline engines.

The JV was officially registered with the Fujian Administration of Industry and Commerce on September 25, 2015. Proton, Lotus Group International Ltd. and Goldstar Heavy Industry Co., Ltd. hold 40, 10 and 50 percent of the equity of the JV, respectively. Goldstar is a company incorporated in May 1997 in Dongguan, Guangdong Province mainly engaged in manufacturing and sales of automotive parts, components and related equipment.

According to the contract signed in April 2015, the total investment sum of the JV is expected to reach ¥10 billion in the period of 2015-2030, and based on an initial stage of investment of ¥2.7 billion, the registered capital of the JV initially will be ¥900 million. The initial stage of the business will be to undertake R&D on the production of whole vehicles, production, distribution and sales of vehicle parts and components. The second stage, which is within 24 months after the business license is obtained by the JV, the JV plans to extend its business scope to produce and sell Lotus brand passenger cars, engines, parts and components and accessories and to provide aftersales services.

This is not the first time Lotus has set up “shop” in China. Youngman Automobile Group, based in Zhejiang Province, had signed a deal with Lotus Engineering years ago to jointly produce Youngman Lotus cars but that venture failed in 2014, and cars produced by that venture were not really the Lotus brand as we know it today.

 

Mahathir Mohamad stands in way

A notable figure that stands in the way in Geely’s potential acquisition of Proton is former Malaysian Premier Dr. Mahathir Mohamad, who founded Proton in 1983. Proton received RM1.5 billion in government aid a year ago on the condition that it implement a turnaround plan and seek a FSP to help its R&D, according to the Reuters report.

Malaysian local media reports that Dr. Mahathir, known locally as the “Father of Proton,” is open to a Proton-Geely tie-up but selling all of it would result in losses to the local auto industry.

“Proton is a national car. If we allow other companies to use our facilities to produce their cars, we will bear the losses,” the former prime minister was quoted as saying in a report from Free Malaysia Today (FMT). Disregarding the current Proton vendors would make it difficult for local manufacturers to compete and he worries that they will be cut off as suppliers and their businesses will fold and then there will be a drop in the number of local automotive engineering companies.

Ong Ka Chuan, Minister II of Malaysia’s International Trade and Industry, clarified later to FMT in a report that Proton is not selling 51 percent of its shares to a FSP and the government is merely encouraging Proton to seek a FSP to boost its capabilities in order to remain competitive on the international market.

“The government is not relinquishing the country’s proprietary rights. We are looking at the opportunities to help Proton grow more efficiently, so that it will be on par with other big brands in the global car industry,” he told FMT.

 

Access to right-hand-drive markets for Geely

Geely has been quiet and has not officially confirmed that it is talking to Proton but the acquisition of Proton gives it access to an important ASEAN market region and its ownership of Volvo Cars is a plus for offering technologies to help Proton in right-hand-drive markets including Malaysia, the UK, India and Australia.

The technologies include those Geely has used to engineer midsize vehicles such as its GC9 (Borui) sedan and Boyue SUV, as well as small car technologies developed with Volvo, according to the Reuters report citing people familiar with the matter. Its investment would also help Proton grow its sales overseas and recover some of the global presence it has lost in recent years. Relevant data show that about 8 million right-hand-drive vehicles are sold every year globally, and the acquisition of Proton would give Geely entry into this global market.

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