Malaysian billionaire Syed Mokhtar seems to have a golden touch these days. The latest addition to his empire sees him take control of domestic carmaker Proton through DRB-Hicom’s acquisition of a 42.7% stake.
DRB-Hicom agreed yesterday to pay M$5.50 a share for Khazanah’s 42.74% stake in Proton for a total consideration of M$1.3 billion ($414 million) in cash, according to a statement to Bursa Malaysia. Proton is Malaysia’s biggest carmaker and owner of the Lotus group, which has lately been a source of losses for the company.
Khazanah, the Malaysian government’s holding arm, has owned its stake since 2004 and the deal will be its biggest sale so far.
Proton shares have traded at an average price of around M$4.88 during the past month, meaning that the bid offers a premium of roughly 13% over the recent market price. The shares closed at M$5.18 on Friday.
Proton has net assets of M$5.4 billion, according to its September 2011 results, which means that DRB-Hicom is paying a price-to-book ratio of 0.56 times. Based on Proton’s net profits of M$155.6 million at the end of the last fiscal year, the sale values it at 19.6 times its earnings — and 24 times its forecast earnings for the current year.
DRB-Hicom distributes and assembles vehicles in Malaysia for various international carmakers, including Volkswagen and Mercedes-Benz — and the collaboration with Volkswagen, in particular, could be significant. Together, DRB-Hicom and Proton have plenty of room for expansion due to spare capacity at some of their existing plants, while Volkswagen has ambitious plans for expansion in Malaysia. Indeed, the German carmaker was interested in buying a stake in Proton directly a few years ago, but met resistance as a foreign bidder.
Mokhtar, on the other hand, is ideally placed. He is the richest ethnic Malay in the country, controls a business empire with strong government ties and is friends with former prime minister Mahathir Mohamad, who is also an adviser to Proton.
Starting out as a rice trader, Mokhtar now owns an empire spanning transport, energy, engineering and plantations, mainly through his flagship company MMC.
The acquisition of Proton is expected to close during the second quarter and is subject to shareholder approval and notification to the ministry of international trade and industry, after which DRB-Hicom will make a mandatory general offer to Proton’s remaining shareholders.
Maybank is the principal adviser to DRB-Hicom and Kadir Andri & Partners is its legal adviser.
