MV Agusta Sale by Proton

I just got in Ithaca, and as usual the whether is like crap! Been snowing since last night and due to jet lag I'm forced to finally write what I think about the recent sale of MV Agusta by Proton to Geneon for $1 Euro.

Let's clarify the issue here. Note that Dr M and TM have sent their letter to the Securities Commission. What they have challenged are the actions of Proton's current Management, or rather the Proton Board (more on this later) in terms corporate governance of the deal more than anything else.

Dr M and TM have noted that much of the financial aspects of the MV Augusta sale have been only skimmed over by the board and current management.

Though they have touched on where MV Augusta would have fit the Proton strategy, this is not the main issue.

The issue here is that the MV Augusta sale by Proton looks fishy! It comes off the back of the Proton CFO and close senior finance guys quiting (in disgust) after TM's departure. The sale was to a single party, at a massive discount. In addition, despite Proton being given a "debt holiday" of 3 years when they bought Augusta, the Proton board is declaring that the recent losses were due to MV Augusta? How have the Augusta debts come into Proton's books in the first place?

The mass media in Malaysia have been very careful in not stating that Proton's car sales have begun its recovery after TM's dismissal, in line with TM's contention that Proton will regain market-share when the AP and tax-under-declaration were cracked down on. However, the current management and board, in their desire to prove TM wrong, had embarked on an expensive sales drive by cutting price (which any fool can do), not realising the poor price elasticity of car demand for such low % price cuts, hence resulting in Proton making lower profits despite selling slightly more cars since TM's departure! This is incompetence in management that the board has been trying to hide!

Using MV Augusta as an excuse and then selling it cheaply as further justification is a mark of poor corporate governance by Proton! Note that, as Proton seems to be Board-driven rather than Management-driven, there is already a major governence issue and this was the crux of the clash between TM and the board in the past, where Proton's board was, even from before TM's time, more interested in Executive action than Board action.

The Proton Board obviously is incapable of valuing MV Augusta properly. On tech alone - MV Augusta tech was applicable for cars, the engine tech would have been adapted for at least the Savvy in < 1 year with significant value added and there is other tech that is cross-purposes between cars and motorbikes - Honda has always integrated it tech - its called Synergistic Innovation in technology. And I beg to differ when people suggest more tech has no value - more tech reduces IP costs and
increases profit margins, with the added value being higher when you're a new car company - e.g. Korean companies are still importing tech even 50 years into the business! Own IP also allows tech sales as was being negotiated by TM with Iran.

But even if you exclude tech as a value of MV Augusta, there is additional value to MV Augusta, specifically its brands, its stocks in hand and its 'debt holiday' for 3 years! Proton could have made more than 1 Euro and debt recovery by doing exactly what the Genoan financiers are now likely to do, break up MV Augusta and sell it off piece by piece! With so many merchant bankers in Khazanah, one wonders if the Proton board consulted any of them in leu of their decision, as breaking up Augusta is a basic option that has been proven viable value recovery since KKR's work in the 80's! BMW did it to Rover just a few years ago!

Now the Proton Board and Management are trying to pull a fast one! Hence Dr M and TM's letter to the SC is to instigate an investigation against Proton for what may well be corporate corruption and shenanigans similar to Enron!

People. Proton is a 20 year investment by the Malaysian people. The jury is still out on whether it is or going to be a long term success. But even if the powers that be now decide it needs to be sold off, it is incumbent on them to ensure that Proton does not sell our investment so cheaply! Proton's value is even higher than its book-value NTA, due to land that has not been re-valued since the 80's, a ready distribution network in Malaysia that is the largest car market in SEA, an international brand in Lotus that is never properly book-valued and IP that is also never properly book-valued. Even the Tanjung Malim plant has strategic value that is higher than book value for any purchaser!

If the Proton Board has managed to sell MV Augusta CHEAP and is now crying success, they are shortchanging the Malaysian people, Proton's biggest investors, and hence they must be made to answer NOW! Not in 10 years! If the purchase of MAS shares from TR by Daim led to Daim's resignation and TR's hounding by Dr M via Khazanah due to strong public outcry, we should demand the same dismissal of irresponsible parties, be it in Proton, Khazanah, or the MOF, if indeed the MV Augusta deal is tainted!

Proton must answer the 7 questions NOW, before we can even dream of letting them risk destroying our investment over another 10 years!