Proton- the village bicycle!

There is an article in the Edge Financial Daily entitled "Proton sale will involve a general offer". The basis of this report is a written reply from Khazanah MD Tan Sri Azman Mokhtar to the Edge Weekly where he stated that Khazanah is looking at selling its entire 42.7% equity stake in Proton. The sale of this entire stake would result in the buyer making a general offer ('GO') under the takeover code.

I have stated before that the buyer of Khazanah's stake in Proton is unlikely to make a GO for the simple reason that the entire exercise would be too costly. Proton has an outstanding share capital of 549 million ordinary shares. If Proton stake is priced at RM4.50 per share, the buyer would have to pay RM2.47 billion. If the buyer can abstain from making a GO, the deal would only cost RM1.05 billion.

Why is the market concerned about whether the Proton deal would lead to a GO? The reason is some of the punters and medium-term investors are buying into Proton today on assumption that there is a GO and that GO shall be done at a price higher than the current market price of about RM4.50. If there is no GO, then the sale of Proton stake by Khazanah would not benefit the minority shareholders (and the punters and medium-term investors).

The big question is why would Khazanah care whether the buyer of its stake would make a GO or not. It should only be concerned with the following:

1. getting a good price for the share;
2. whether the buyer can help to upgrade Proton; and
3. whether the deal would contribute to the domestic automotive industry.

Any talk about a GO would only serve to push up the price of Proton and thus strengthen Khazanah's bargaining position. Is that the reason why the story in the Edge Financial Daily leads with the title "Proton sale will involve a general offer". Or, is there another reason for this? The same article rightly pointed out that a GO would be too prohibitive for the potential buyers and as such may frustrate the deal. Is Khazanah talking up the price in order to scare off the usual suspects?

Regardless of Khazanah's intention, I can think of a few ways that the new buyer can skip this costly exercise. It can do any one of the following:

1. Buy the entire 42.7%-stake together with another party and declare that both parties are not acting in concert;
2. Buy the entire 42.7%-stake and seek an exemption from making a GO;
3. Buy a stake of less than 33% (Who is going to say Khazanah cannot go back on its word?).

To all the punters & medium-term investors who are buying or who have bought into Proton, ask yourself these questions:

1. Is Khanazah really serious about selling of its Proton stake?
2. Will the buyer make a GO?

My answers to these questions are Definitely Maybe and Possibly Not. In that order...