Taken for a ride again (pun intended)

TheStarBiz:Harley-Davidson Inc has signed an agreement to purchase Italian motorcycle maker MV Agusta Group.The heavyweight motorcycle manufacturer said under the agreement, the company would acquire 100% of Agusta shares for about 70 million euros, which includes the satisfaction of an existing bank debt for around 45 million euros. “The agreement also provides for a contingent payment to (Agusta chairman) Claudio Castiglioni in 2016, if certain financial targets are met,” the company said in a statement posted on its website. Agusta is privately held, with the Castiglioni family owning 95% of shares. Proton Holdings Bhd once held 57.75% equity in MV Augusta Motors SpA, which it purchased for 70 million euros in December 2004. It subsequently divested the stake to GEVI SpA for one euro in March 2006.

The sale, which drew strong criticism from the local carmaker’s then top management who had negotiated the MV Agusta stake purchase, helped Proton to write off the unit’s losses from its accounts.Agusta has significantly slowed production in 2008 due to financial difficulties. Harley-Davidson chief executive officer Jim Ziemer said the acquisition was primarily to expand Harley-Davidson’s presence and footprint in Europe. Retail sales of Harley-Davidson motorcycles have grown double-digit in Europe in each of the last three years, following company’s increased strategic focus on global markets. “Following closing, the first priority will be to appoint a leadership team to include a new managing director and to resume the manufacture of current models,” the statement said, adding that Claudio Castiglioni would continue his role as Agusta chairman.

MyTake: This subject has been discussed and criticized extensively more than 2 years ago. I am sure today's news has finally confirmed that our "savvy" Proton Board and "wira" Khazanah have made a very unwise investment decision to sell off MV Agusta for 1Euro. Proton is definitely a laughing stock of the investing world now.We tend to attract attention for all the wrong reasons, don't we. I will not go through the details of the sale but will only summarised the "realised" profit and loss for the respective parties.

Proton Holdings Bhd

Purchase consideration 70m Euro

Less: Sales consideration 1 Euro

Loss 69.99m Euro or 99.9%!!

(According to Proton, the company lost about RM500m on the sale of MV Agusta)

Gevi SpA

Purchase consideration 1 Euro

Less: Sales consideration 70m Euro

Profit 69.99m Euro or 69.9m%!!

(Gevi SpA is "supposed" to be a special purpose vehicle. No information is given with regards to the shareholders but I believe it is related to the family of Castiglioni and "friends")

To inflict further pain to our already wounded hearts, MV Agusta has earlier managed to sell the Husqvarna, a division of MV Agusta which manufactures sporty off road motorcycles to BMW for an undisclosed amount. Unconfirmed sources say it is around 90m Euro? As such, the opportunity lost becomes worse for Proton but better off for Castiglioni and "friends". Looks like both Proton and Khazanah(43% share owner) have some serious explanation to do. But will they ever explain? They have already said Proton wants to "move on" after selling the debt ridden MV Agusta. One of the reason put forward earlier to sell MV Augusta was that "in the event MV Agusta falls into bankruptcy, Proton would be subjected to a contingent liquidity for an amount up to RM923m". Were the company/decision makers "ill advised" or "short changed"? I can't help but wonder whether other investment/business decisions made recently were ill advised too egs., calling off abruptly on going discussions with GM and Volkswagen, etc. (psst...the next time you want to sell Lotus, please inform me first, maybe I can afford it la!!!)

Some financial information on Proton. For the fiscal year ended March 31 (FY08), Proton's unaudited results showed that revenue was RM5.6b and net profit was RM202.8m. As a comparison, for the FY07, revenue was RM4.9 billion but a net loss of RM589.5mil. Its cash in hand was RM1.2b, an improvement from previous year's 626million. Proton's Malaysian passenger car market share is about 24% as compared to its "younger brother" Perodua which has a market share of 33%. (Note: Proton's market share in 2000 was more than 60%). What is in store for Proton? Although its results have improved, we really need to see whether Proton can deliver (TIMELY/QUALITY) with its new models eg Persona and Saga against its competitors and how successful are its overseas sales in Iran, Thailand and China. Also to assess is what will be the impact on Proton from the soon to be discussed revamped National Automotive Policy? I view of the current competitive and depressed market, I will give Proton a missed for now.

* Japan kept its rates on hold at 0.5% while lowers its growth forecast. (latest 2008/09 estimates 1.2%, earlier estimates 1.5%)

* China's growth probably slowed to 10.3% in the 2Q2008 (previous 3Qs was 10.6%) as exports slowed. June CPI was 7.3%(May 7.7%)

* Bloomberg: Japan's top 3 banks (Mitsubishi UFJ, Sumitomo Mitsui and Mizuho Financial) have exposure in Fannie/Freddie's debts amounting to USD44b while Taiwan's Cathy Financial has USD6.6b. It will be a matter of time other major banks and countries will announce their exposures with Fannie/Freddie. So far Goldman Sachs, George Soros and Jim Rogers have criticised the US government for its intervention. Jim Rogers says that the US Treasury Department's plan to shore up the GSEs(Government Sponsored Enterprise) is an "unmitigated disaster".

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* Petronas net profit for the year ending March 2008 is RM61b or a 31% rise a year ago due to higher crude, petrochemical and lng prices. Total dividends paid or payable amounting to RM30b(2007:RM20b).