Proton- Arranged Marriage is back in fashion

First, we have Proton's clarification on December 6 that "after making due enquiry with the Board of Directors and major shareholders, the Company is not aware of any reason for the unusual market activity in the shares of the Company recently, and further, that there is no material corporate development not previously disclosed". For more, go here. Then we have seen DRBHicom's announcement on December 8 that "the Company is not aware of the source and the basis of the article... appearing in page 1 of Starbiz section, The Star newspaper dated 8 December 2011". It was reported that DRBHicom is bidding "for control over Proton... to include the presence of Volkswagen AG at a later stage". For more on the announcement, go here. For more on the Start article, go here.

From the above, we can conclude that Khazanah, being the major shareholder of Proton, may not be looking to sell off its 42%-stake in Proton, contrary to the various reports that it was soliciting buyers for this block. Similarly, DRBHicom, despite various reports, is not looking to buy over Khazanah's block in Proton.

Today, we have a report in the Starbiz section of the Star newspaper that DRBHicom is indeed buying over the Proton stake from Khazanah (here). The source of this information is none other than our former Prime Minister, Dr. M. As I said before, Dr. M still regards Proton, his brain child, as something which he has absolute control over. Why is he trying to broker the sale of Proton stake from Khazanah to DRBHicom. My gut feeling tells me that Dr. M must have gotten wind that Khazanah is planning to deal with or dispose off the Proton stake in a manner which he doesn't like, such as selling off the stake to a foreign party. What do you do if something like that happens? You undermine this delicate negotiation by getting a local party, preferably a Bumi-controlled company to take over Proton. Is this a good move for Proton in the long run? Is it in the best interest of Proton shareholders or the nation?

If DRBHicom is buying over the Proton stake from Khazanah, the deal would most likely include DRBHicom getting an exemption from making a GO for the rest of Proton shares. This has always been Syed Mokhtar's tactic of gaining control at the minimum cost. This can be done by structuring the transaction as an acquisition of a stake of less than 33% in Proton, similar to the Sime's E&O acquisition. The share price of Proton would likely to stay around the RM4.00 until the deal is consummated. If a deal doesn't materialize, Proton share price may even drop back below the RM4.00 mark.

Proton is now caught in a battle between Khazanah's strategic investment move & one man's dream- Dr. M's. His ambition of building a good, decent car for Malaysians & a strong automotive sector that can power Malaysia's industrialization program have long been reduced to a nostalgic dream. It is time for Dr. M to accept the reality that Proton will not succeed in its present form, regardless of who is in the driving seat. It is time to do right for Malaysians & Proton by allowing Khanazah to find the best solution to Proton's many problems.

While Proton may look like a trading BUY (with the huge volume traded & the bullish technical indicators), I would advise the less-nimble traders to give it a miss.