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.