The government is said to be setting up an advisory council to look into the proposed merger of national carmakers Proton Holdings Bhd and Perusahaan Otomobil Kedua Sdn Bhd (Perodua), sources said.
The advisory council would be tasked with coming out with the exact form the consolidation could take. At press time, it was not clear which individual would be given the mandate to head the council or if any potential candidates had been singled out to head the advisory council.
While several parties had earlier indicated that the merger plans between the two companies were off, The Edge Financial Daily understands that Proton and Perodua were requested by government agencies to make a presentation to the Economic Council, headed by Prime Minister Datuk Seri Najib Razak, in Putrajaya in March this year.
Insiders said Proton’s presentation was fully for the merger of the two companies, while Perodua’s was strongly against. The overall sentiment of the government agencies was also understood to be for a merger.
“At this stage, at least the government seems to be leaning more towards merging the two companies … but there is strong resistance from Perodua,” a source familiar with the matter said.
International Trade and Industry Minister Datuk Seri Mustapa Mohamed, was quoted in January as saying that the government would not force a merger between Proton and Perodua. However, on March 11, the minister was quoted in the press telling the Dewan Rakyat that the merger of Proton and Perodua would help counter the structural problems in the local automotive industry. Mustapa’s comment was based on the results of a study conducted by the Malaysian Automotive Institute (MAI), a unit of Miti.
Talk of the two companies being merged surfaced sometime in the middle of last year. MAI was roped in to advise and had made its confidential proposals and recommendations to the government last November.
Proton is 42.74%-owned by state-controlled investment arm Khazanah Nasional Bhd. Other government-linked shareholders include the Employees Provident Fund (EPF) which owns 10.75%, Petroliam Nasional Bhd (Petronas) with 7.85% equity interest, pilgrim management fund Lembaga Tabung Haji (3.06%), Kumpulan Wang Persaraan (KWAP) (2.76%) while other government-linked funds, such as Valuecap Sdn Bhd and Permodalan Nasional Bhd (PNB) among others, own another 4.5%. This means the government and its entities control about 68.84% of Proton.
The government is also a major shareholder of Perodua via several government-linked entities. Perodua’s shareholders are UMW Corp Sdn Bhd with 38%, MBM Resources Bhd (20%), Daihatsu Motor Co Ltd (20%), PNB Equity Resource Corp Sdn Bhd (10%), Daihatsu (M) Sdn Bhd (5%), Mitsui & Co Ltd (4.2%) and Mitsui & Co (Asia-Pacific) Pte Ltd another 2.8%. UMW Corp is a wholly owned unit of UMW Holdings Bhd, which is about 60%-controlled by PNB and its various funds. Other major shareholders of UMW Holdings include the EPF with 11.62%.
Perodua has controlled more than 30% of the local passenger car market since 2006. In 2005, Proton had a market share of about 40%, but this has since slipped to below 30%.
Much of Perodua’s success can be attributed to its partnership with Daihatsu, a unit of Japanese giant Toyota Motor Corp.
Perodua’s Japanese partners also have 51% in its manufacturing arm, Perodua Manufacturing Sdn Bhd and Perodua Engine Manufacturing Sdn Bhd.
According to Perodua’s website, it can manufacture some 250,000 vehicles per year on a two-shift cycle at its assembly facility in Rawang.
Proton has a manufacturing facility in Tanjung Malim with a capacity to assemble 150,000 vehicles a year on four multi-model production lines. Proton’s plant can however, be beefed up to handle much more production capacity. Other than the plant in Tanjung Malim, Proton also has a manufacturing facility in Shah Alam.
It is likely that Perodua officials are against the merger as they have sufficient capacity and do not see any merits in the union. Proton, meanwhile, may support a merger as it could help resolve under-utilisation of capacity at Tanjung Malim while taming competition in the market, observers said.
Nevertheless, apart from the interests of various stakeholders — such as Daihatsu and minority shareholders of UMW Holdings, which need to be looked into — the concern on whether a merged Proton-Perodua would deprive consumers of better choices in the car market could spark a major debate. - by Jose Barrock of theedgemalaysia.com
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