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Friday, February 19, 2010

Proton - the saga of MV Agusta

MV Agusta and the saga of Proton - as opposed to Proton Saga - buying the former have never failed to intrigue me. I have written a piece about this a long time ago.

Just why a company, which was started to manufacture and sell value-for-money cars but which has failed miserably to do so and which has so far lived to see the sunlight every morning simply by virtue of protectionism and forced market intervention would go and buy an ailing  company manufacturing high-end motorbikes escapes my simple mind.

MV Agusta was a lost making outfit with massive debts. And Proton paid a real hefty sum (RM560 million - according to DrM). With that, pursuant to Italian law, Proton also inherited Agusta's debts of Euro 107 million. Should Agusta fall into bankruptcy, apparently Proton would have been subjected to a contingent liability of RM923 million. The original report is here. 

The question is, why did the previous board of Proton deem it prudent and in the best interest of Proton to purchase an ailing high-end motorbike company with massive debts?

The next question is why must Proton pay such a massive price for a company with obviously a negative net tangible assets leaving the whole purchase price to be treated as mere goodwill? In business term, was Agusta's goodwill worth RM560 million?

And if one were to add the contingent liability - which was crystalising faster than a Proton Waja could go from zero to one hundred - Proton was actually paying more than a billion bucks for this company!

As the story goes, after DrM was replaced by Tun Abdullah as the Prime Minister and after Tengku Mahaleel was replaced by Dato' Syed Zainal as Proton's chief, Agusta was sold at a mere Euro 1. The effect of Agusta's massive debts on Proton's balance sheet was just too much for Proton to hold on to a non-performing "asset". Added to that the legal requirement for Proton to settle the debt of Agusta in real money left Proton with no other choice but to sell Agusta.

In the real dog-eat-dog-and-everything-else business world, a company with massive debts and a negative NTA is worth....well..just a single buck. And Agusta had to go for Euro 1. Just as Tony Fernandez bought the then non-performing airline for RM1.

That of course raised the ire of DrM. He questioned why the sale for Euro 1. Recently he raised the same question again on his blog. 

This time DrM quoted from a magazine, Robb Report, that after acquiring Agusta for US 100 million, Harley Davidson has revitalised the company.

So, the picture which one gets from reading DrM's article is that Proton was stupid enough to sell Agusta for Euro 1. That conversely implies that DrM and Tengku Mahaleel were very wise in purchasing Agusta for 500 over million bucks as well as committing Proton to a contingent liability of 900 over million bucks.

But what DrM has failed to mention in his blog is that Harley Davidson had in fact discontinued Agusta's operation with a full year loss of USD 128.8 million! Please see the relevant Harley Davidson's account here.

And so it would appear that Agusta is a serial sucker puncher for those foolish enough to believe that it is a viable venture. First it was Proton who was foolish enough to purchase it at RM 560 million (this figure is from DrM's blog) and sold it for Euro 1. Then it was Harley Davidson who was yankie-doodleingly moronic enough to part with USD100 million for it.

Who is the real winner out of this? Yes. It was the party which bought Agusta for Euro 1 from Proton.

A friend of mind, Wenger J Khairy, wrote an illuminating article on the saga of MV Agusta on his blog. Please read it.

19 comments:

Ah Pek said...

Eh...Mr Art, could it be due to "komisyen" for certain people in the initial acquisition and subsequent disposal ?

sickput said...

Don't you all know? It was mahathir's policy to let the rakyat subsidise the rich.
In proton's case, the poor rakyat had to fork out thousands for their cars, and proton spent hundreds of millions on Lotus and AGUSTA.
Money from from kampung folks to the rich and luxurious Brits and Italians.
Even today, Lotus is bleeding money, and you suckers who bought proton are helping the employment of brits who are paid maybe ten time more, making plastic (OK, carbon fibre) sports and supercars.

Wenger J Khairy said...

What a piece bro! Thanks a lot..

(Spent 2 hrs to chew that story, really worth it to do my bit for debunking lies for the country)

Anonymous said...

Any kickback involve is my question.

telur dua said...

The Federal Gomen is very noble. It believes in bailing out failing foreign companies in First World countries e.g. Lotus and MV Agusta.

These @#$% obviously haven't heard of the saying 'Charity begins at home.'

swipenter said...

This Mahathir guy cannot, will not admit that he is not perfect. He is very good to give us half truths to make himself look extremely good and have our interest at heart. I wonder what did his son do to become a billionaire. We know that his business empire were/are not exactly producing sterling results.

donplaypuks® said...

Bro

I have challenged Dr.M at his blog to make a police report and get to the bottom of this matter or shut up!

But, I suspect he will do nothing. He wants the privilege of griping while not daring to open the Pandaro's Box of the initial deal which might reveal who brokered the investment in MV Augusta and was paid commissions or kick-backs!!

dpp
We are all of 1 race, the Human Race

donplaypuks® said...
This comment has been removed by the author.
Fahri said...

Bro, great piece as usual, although a bit short (always like to read more of you). Thanks for the link to Wenger J Khairy's blog which was a bloody hilarious read! If only I could write so beautifully and humourously in Malay!

Wenger J. Khairy said...

Bro Art,
Thanks once again for the link. Yours is a mega blog and small time operators (warong kopi) need business from your hipermarket to stay alive :-)

The key here really, in my opinion, is to not blame Pak Lah and Khairy. Both are excellent peoples, and whenever you hear a bad news or fitnah about them, kaji dulu.

Jangan makan2 buta - buta.

So Malaysians must be willing to ask questions to their media and if not, be arsed to find out answers for themselves.

You have filled the void on matters concerning law both criminal and corporate.

I hope to fill the void on matters concerning finance

Anonymous said...

Don't buy
- Proton,
- any gomen bond,
- GLC bond

Take EPF out as much, as quick as possible
Get your friends, relatives, road side by standers to vote PR in GE13

Then you will have less of this kind of BS.

donplaypuks® said...

And if ever there was a gaji buta advisor (who is never called to advise) to Proton and Petronas, then Dr.M must be the one.

Wonder how much fees they pay him.

Anonymous said...

remember : KTM asks for rm1 too BUT no taker !

rob said...

Art
another excellent and enlightening piece. looks like you start the year of tiger roaring. may god bless you to continue educating and illuminating the rakyat.

back to normal programming.

dr m has always wanted to play on the global (or is it glokal) stage. ego lah tu. hence he thought that a small little company like proton could turn into something like ford or toyota. unfortunately he is a doctorate in medicine and not in economics or finance.

to aid all these acquisitions he was given a blank cheque by proton directly and indirectly by the rakyat. we kept him in power for 22 years and umno for 53. so salah sap?

peace
rob

ps can add another category to the check-boxes - clueless?

Jake said...

Their stupidity is baffling.

Anonymous said...

swipenter,

We all know how his son's became a billionaire. We just did not voice it out.

Anonymous said...

Art,
You must be really stupid or this is just a personal vendetta against Dr M.

Proton's acquisition of MV Agusta was for a different purpose than Harley's. Viability of developing compact car engines made it the asset Proton was looking for. Harley is not interested in making compact cars are they? It's all about the strategy, so don't go around thinking all acquisitions are the same. So who gained from the premature disposal?

Let me give you another example, moron. When Yahoo bought HotJobs it was to add value to its suite of online applications. When Monster recently bought HotJobs it was for traffic and data. Again different strategies.

Bash the guy all you want, I don't care, but don't also use half truths to do it, as*hole. It's just like the pot calling the kettle black.

art harun said...

Anonymous @ 22/2/2010; (01:16),

You know, you might just get your message across more effectively if your maintain a degree of civility and good manners.

Why can't we disagree but remain nice to each other?

But anyway, thank you for reading an article and taking the time and trouble to comment on an article written by a stupid person, a moron and an asshole.

Ok. So Proton now bought MV Agusta in order to develop a compact car engine eh? Why would you need to pay RM560m plus committing yourself to a contingent liability (which was almost realised) of RM900m to develop a compact car engine? You mean Proton wanted to use a two-stroke engine for its small cars?

After ditching MV Agusta, Proton came up with Savvy. Did it need to spend RM560m plus RM900m to develop Savvy's engine?

So, what if Proton wanted to develop a 3 litre engine? Buy a chunk of Lexus from Toyota?

This is symptomatic of Mahathirism. Everything that we wanted must come straight from whatever we can buy. We don't want a slow progress through years and years of R&D. We want instant mee maggi. And we pay and we pay.

You mentioned Yahoo and Hotjobs and Monster. Good for you. But lemme ask you this. When Yahoo bought Hotjobs and later Mosnter took over, was their balance sheet bled by Hotjobs' debts? Was there a contingent liability which was crytalising up to RM900m which, if realised, would have affected Yahoo's or Monsters' cashflow and credit rating? Was Hotjobs' a negative NTA company?

Salambangi said...

Dear Tarzan

Salam to you and you legal/politico fraternity.Hilighting corruption is indeed a noble job. I would have to to commend you for doing such a good job.However, bashing Proton or and GLCs because of protectionism is not a smart move.Without this so called evil element(including legal services) I dont think you can afford to own a 5 Series.Hence, be a bit grateful to the country. Also, don't be too over-zealous with extreme globalization and free trade.