The old unsolved problems pop-up again, and this time Germany’s Volkswagen (FRA: VOW) was reportedly wants to take 20% stake initially in Malaysian loss-making car-maker Proton Holdings Bhd (KLSE: PROTON, stock-code 5304). Volkswagen also wants to be able to raise its share to majority stake of 50% within five years, which makes business sense otherwise why bother spending money, effort and brains in reviving the Proton.

Reuters and local news reported that the proposal mooted by Volkswagen is for the Malaysian government to gradually pull out while taking on any losses during the starting phase of the partnership. Although it’s not clear the definition of “pull out” in this context, the government is required to settle all the losses before Volkswagen will pull in its’ resources in full-blown to assists its ailing partner.

The government might be required to “pull out” from its’ majority stake which currently stands at 59%, including a 43 percent stake held by its investment arm, Khazanah Nasional. It could also mean that the Malaysian government is required to “pull out” its management team from Proton in order for Volkswagen to have a clean and free hand in turnaround the company. For all you know the agreement might involves selling the controlling stake gradually to Volkswagen leaving the government with minor say ultimately.

But the question remains if the ruling government especially the backbenchers of UMNO, the biggest party component in the current ruling government, will keep quiet and not boycotts the partnership (or acquisition by VW?) considering Abdullah Badawi administration is rumored to call for a general election anytime soon. It depends very much on the timing and the full details of the partnership are not expected to be announced before the general election.

It could give Abdullah Badawi his biggest headache if the above proposal is true and materialized before the election as he could angers mostly Malay-ethnic who are the main employees of Proton, not to mention the reaction from former premier Mahathir who is well awake after his successful heart by-pass surgery last week.

Other Articles That May Interest You …

• New PROTON Model with Old Design Launched
• PROTON Saga Ending – VW as New Boss with 51%
• 5 Reasons Why You Shouldn’t Investing Proton Stocks

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September 12th, 2007 by financetwitter

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