By Johann Foo
Just when the people running the show at Proton would wish the name MV Agusta (“MVA”) will stay buried forever it raises its ugly head yet again.
This time we have our former Prime Minister, Tun Dr Mahathir, jumping on the news via his blog and claiming vindication for their decision to foray into MVA. Needless to say, Tun’s comments were reported by Malaysiakini verbatim when they updated their report entitled “MV Agusta – Proton sells for RM5, Harley buys for RM350 million”.
When we talk about a fair media, it must also extend to the online media; bloggers and online news portals, especially an outfit like Malaysiakini that many regard as anti-government. People generally see the mainstream boys as the guilty of bias and, quite frankly, there is not much to disagree over this popular view. But are Malaysiakini and Tun Mahathir playing by the rules we believe in?
Mislead by Numbers
This is what the great Tun said in his blog: “Some months ago Husqvarna, a division of MVA which manufactures scrambler sporty off-road motorcycles was sold to a German company, BMW for 90 million euro (RM450 million). Now the rest of MVA has been bought by Harley-Davidson Motor Cycles of the United States for RM350 million.” Tun further argued that Proton has lost approximately RM800 million by selling Agusta for only RM5. “The buyer (GEVI Spa) invested one euro and made 160 million euro,” he said. Malaysiakini offers no challenge to these figures presumably because it is in tandem with their original headline. Tun’s comments serve their agenda.
As it turns out both the Malaysiakini headline and Tun’s comments are deliberately misleading because they are not really comparing like with like and they should know better.
Details on the earlier BMW deal for the Husqvarna brand have been rather sketchy. While the ball park 90 million Euros is the figure that has been widely reported, the ‘construction’ of the deal in terms of what went to the owners and what was assumed debt is unknown. Tun Mahathir simply assumes the entire 90 million Euros had gone to the owners. It is unlikely to be that way because we know from this latest deal, MVA is still debt laden and it is highly improbable that the banks would agree to a deal that sees the Castiglione family enjoying the cake exclusively.
This latest deal is a lot more transparent. Of the total consideration of US 109 million, we know from the Associated Press report (and reflected in Malaysiakini) that the figure includes US70 million of MVA’s existing bank debt assumed by Harley-Davidson. In other words, the owners got the difference of USD39 million and not the entire US109 million. Tun Mahathir and Malaysiakini would want you to think it was the larger sum.
So what is the point of my argument?
Well, US39 million is still RM125 million more than one Euro but it is rather disingenuous to say that Proton had lost RM800 million by simply lumping in assumed debt when it suits the agenda.
We know that from Proton’s press release on June 16, 2006 that the company would have been subjected to a potential liability of RM923 million if MVA had gone into bankruptcy ( see bernama news) ). This was the existing debt incurred by MVA well before Proton set foot in Italy and which Proton was happy to shoulder entirely with just 57.7% of the company. The Castiglione family, which still owned the bulk of the remaining shares, was home free. I suppose Proton had no choice but to grandfather the debts or the company would not have the ‘prized’ 57.7%.
GEVI Spa, in buying Proton’s stake, assumed the responsibility for the debts. It would of course be farcical to add the debt to the one Euro received by Proton and call that the sale consideration but that’s exactly what Malaysiakini and Tun Mahathir are both doing when it helps to cast the Proton management in poor light.
Why did Proton acquire the interest in MVA?
There was much talk about operational synergies prior to the acquisition but show me just one mainstream paper that had asked what Proton could have learned from a motorcycle manufacturer to help it make better cars. Indeed what could Proton learn from MVA that it could not learn from Mitsubishi and Lotus?
In Proton’s June 16, 2006 press release, the company poured cold water on the idea of synergies. Tengku Mahaleel and Tun Mahathir would beg to differ of course.
Not many knew (and Proton kept silent on the issue) that MVA had been under temporary receivership since 14 November, 2002 and that the receivership proceedings were terminated in mid November 2004 only because of Proton’s infusion of the 70 million Euros (RM368 million) – see the forum here. And that wasn’t all because in FY2006 Proton made a provision for RM136 million, bringing the total amount to the figure of RM504 million mentioned earlier. I believe this represented the amount of working capital that was pumped into the company to keep it afloat after the acquisition. Credit Suisse also observed that MVA would need continuing financial support and they are probably talking in excess of RM100 million if the FY2006 figure is a yardstick to apply.
So what was the turnaround plan for MVA? Was there any viable plan? Do not forget the company had great brands which we now see are worth millions. Tun Mahathir and Tengku Mahaleel could both see the value and they deserve credit for this. But what made them think that Proton, already struggling in their own backyard in their car business , could turnaround MVA when even the Italian family could not? And they surely know more about motorcycles than both these Malaysians.
Also, where was the Chairman of Proton when the deal unfolded? Datuk Azlan Hashim was a senior partner of Azman Wong Salleh & Co., a large local accounting firm. As a seasoned accountant, why couldn’t he see the cash demands on Proton and the poor balance sheet of MVA? Why did the board approve the deal to purchase the 57.7% stake when it would be sucking so much cash out of Proton? What do they do during board meetings?
So why did Proton dispose of MVA so soon after the acquisition?
I believe the answer lies in the report by Credit Suisse.
This adviser stated in their report that the future for MVA was not looking bright. Well, MVA hung on to dear life, long enough for Claudio to sell the brands at good prices and end up with more money in the pocket for the Castiglioni family and perhaps finally free from enormous debts. But remember that this was made possible by the incredible gift of at least RM504 million from Proton.
Hindsight is of course a wonderful thing, so now Tun Mahathir thinks the ACA should investigate the role of Credit Suisse who was paid a huge consultancy fee to advise Proton’s management who executed the sale.
Tengku Mahaleel’s contract was not renewed so we will never know whether he could be as savvy as Claudio. The cynical might even ask what the real reason behind his sacking was if he was so worldly and wise.
Now, what could the board do when they have such a bleak report from their highly paid and well known adviser? To hang tough would require people with nerves of steel. Claudio may well be a truly savvy guy, but what could he really do but wait, especially when proton had effectively gifted his family RM504 million? The situation in Proton was different; people had jobs and rear ends to safeguard. So sell and hang the decision on the adviser.
Who is behind GEVI spa?
A reader at the People’s Parliament, MFZ, thinks that GEVI Spa is a front for good old Claudio. He does not say why but I would tend to agree with him.
I share this view because Proton’s initial outlay of 70 million Euros (RM368 million) was for a new issue of shares such that Proton owned 57.7% of the enlarged shared of MV Agusta. In Malaysiakini’s report (quoting the Associated Press), it is stated that “MV Agusta is privately held, and the Castiglioni family owns 95 percent of its shares.” The only way for the family to own 95% of MV Agusta is that the shares previously held by Proton are now in their hands. Thus, based on this reasoning, I believe that Claudio Castiglioni bought back the company for nothing after Proton had gifted him at least RM504 million. What a charmed life!
So many questions deserve a proper answer. It is events like this that I wish we have a freedom of information act so the people know who to extract blood from.
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