Screenshots: One morning with Tengku Mahaleel... ( 2 )

PART I: The wisdom of €1

Take it as yet another round of "me say, they say" in the intriguing Proton-MV Agusta-GEVI SpA controversies, we persisted by asking former Proton Group CEO Tengku Mahaleel Tengku Ariff for his response to the bold headlines in The NST and NST-Business Times on June 17: The Proton saga: Revealed.

Tengku Mahaleel with Associated Press Malaysia bureau chief - LensaPix by Jeff Ooi

On June 16, in what appeared to be a decentralised rebuttal of Dr Mahathir's tough questions on the Abdullah administration that the latter had tacitly avoided a direct reply, Proton Holdings Bhd again came out in defence of its sale of financially-troubled MV Agusta, reiterating that there were no synergies between the motorcycle maker and Proton as a car maker.

The company's June 16 statement, among other things, said:

"There were no operational, engineering, and technological synergies between Agusta and Proton. This has been independently confirmed by Proton's appointed advisers. Proton manufactures cars for the masses while Agusta manufactures motorcycle."

To this, Tengku Mahaleel told Screenshots that it's futile to talk to people running automobile industry who do not know automobile industry.

He pointed to the success model experienced by BMW, Honda and Suzuki, which are automobile giants who first started off as motorcycle manufacturers.

But more importantly, said Tengku Mahaleel, management at Proton had again dodged answering the key question he raised on April 14, and echoed recently by Dr Mahathir recently, about the loss that Proton, which bought MV Agusta for RM500 million, incurred when it was re-sold to GEVI SpA for €1.

Another prickly question that the present Proton management avoided answering in its June 16 statement is the background about GEVI SpA. Who are they? Why were they given the approval to take over MV Agusta at €1 without open bidding?

Q&A with Tengku Mahaleel

QUESTION: When Proton first bought 57.75% stake in MV Agustra in December 2004 for € 70 million (RM367.6 million), was it sound investment?

ANSWER: If MV Agusta is that bad as it is made out to be, no buyer will put their money to purchase it. That includes Proton when I was there.

The fact that GEVI SpA bought it, could it mean they see some 'hidden' value that we cannot see?

Q: How did the previous Proton management arrive at the decision to buy MV Agusta?

A: When you buy or sell something, there is always a valuation. You ask tough business questions like: Was there a valuation made on MV Agusta? Who made the valuation and what is the value? Did the Audit and Risk Committee of the company review this valuation.

Now, let's get down to the figures.

( a ) Did the present Board know that MV Agusta had about €60 million (RM300 million) worth of stocks for sale as at September 2005?

( b ) Did the present Board know that it has two design centres and manufacturing plants worth €80 million (RM367.6 million)?

( c ) Don't forget, the Board has admitted it is aware that Proton paid almost RM350 million as goodwill for the purchase of MV Agusta.

So, if we assume ( a ), ( b ) and ( c ) are alll correct, add them all up, and the then value of MV Agusta is almost RM1 billion.

MV Agusta had debts, some were frozen, of almost RM500 million. So nett value of MV Agusta then was almost RM500 million.

Perhaps, that's why GEVI SpA, which was offered to buy it at €1, has bought it as it stands to gain immediately at a profit if it decided to re-sell.

Of course, investment banks will make the commissions as part of the business.

Q: You said just now, that MV Agusta had about €60 million (RM300 million) worth of stocks for sale as at September 2005? That will benefit GEVI SpA if they liquidated the inventory immediately?

A: Need I say more? So, our questions remain, and I am asking them again:

( 1 ) Why sell MV Agusta at €1 when, perhaps, the value of MV Agusta is more than €1?

( 2 ) Why was there no advertisements or public announcements to call for bidders for MV Agusta when it was up for sale?

( 3 ) How was GEVI SpA identified as the ultimate buyer?

( 4 ) Who are GEVI SpA shareholders and what is its paid up capital?

( 5 ) Is GEVI SpA a motocycle company? If not, what it is?

( 6 ) Who are the other companies that bidded for MV Agusta? What were their bids? Did they ask for free, or else how can they bid lower than GEVI SpA who got it for €1?

Q: Did Claudio Castiglioni, the shareholder and chairman of MV Agusta, make a bid then?

A: You better ask the present Proton management on this. But I was told the Board and Chairman of Proton had refused to see Claudio before September 2005. You must ask them why?

Q: Was there a recommendation from the Board of MV Agusta, of which Claudio is the chairman and an interested party, to sell off Proton's stake?

A: Go ask them (present Proton management). But I want to ask the question: Why did Proton representative refuse to attend the MV Agusta Board meeting where the facts could be laid out and solutions found?

Is the Proton Board aware of the various proposals MV Agusta made and was preparing to help develop Proton in engineering, products and brands. If they knew, what were they?

Q: So, what can we conclude from all this?

A: First of all, there still remain serious, nagging questions on the sale of MV Agusta at €1. Why all the hurry? Why was there no indication to the Chairman and CEO of MV Agusta that all is not well and that Proton was considering selling out?

Let me ask you this: Assuming it is NOT the management and the Board of MV Agusta who recommended Proton to sell MV, and making such such a big loss, then who made that decision? And why?

So much for Part I. And I haven't given you the answer why Tengku Mahaleel had told me, after roti canai and teh tarik, that I could possibly have been one of Malaysia's 328 new millionaires, but someone just screwed it up for me.

We will do that tomorrow. Meanwhile, let's get a balanced view to Proton's side of story

Backgrounder

As a backgrounder, Proton bought a 57.75% stake in MV Agusta in December 2004 for € 70 million (RM367.6 million). However, after Tengku Mahaleel's exit from Proton in June last year, the current management sold the stake to Italy's GEVI SpA, an upstart with no track record, which also assumed the motorcycle maker's € 107 million debt.

The rationale given by the present Proton management on the disposal of MV Agusta is as follows:

The entire purchase consideration of RM367.6 million was treated as goodwill and written off in the financial year ended March 31, 2005.
The additional provisions relating to MV Agusta in the accounts of the Proton group for the financial year ended March 31, 2006, amounted to RM136.2 million.
In the event MV Agusta falls into bankruptcy, Proton would have been subjected to a contingent liability for an amount of up to RM923.1 million.

The Proton managment also reiterated on June 16 that the decision to dispose the stake in MV Agusta was after careful consideration of the financial and operational implications to the Proton group, both in the immediate as well as the long term.

"The primary consideration was to minimise future potential losses for the group," Proton said.

Comments

All we've heard of so far, in blogs and newspapers, are facts about numbers, shares, debts, liability assumed etc. etc., i.e the business side of things. I'd love to know more about the technical facts involved, that is what technology did MV have that Proton wanted? Was it engine technology, engineering capability, R&D know-how or what? Haven't heard anyone talk about this, neither Proton nor the TM's. At the end of the day this is what it all boils down to. What did they have that Proton wanted? And how did Proton go about "transferring" the technology? I'm sure Proton wasn't just interested in selling motorbikes..

JEFF OOI says: I must declare I do NOT have the relevancy competency to ask technical questions about the automobile industry, hence my questions posed to TM were restricted to questions on transparency in business management and good corporate governance. Secondly, questions on technicalities would be best appreciated if there were illustrations and R&D modelling beamed on the big screen anot not my static websites.

I have obtained TM's agreement to meet Screenshots readers -- over teh tarik and roti canai and prefereably indoor -- so that we could have an engaging conversations on the technical aspects of TM's long-term plans for Proton before he was removed as its Group CEO.

I will host this in KL for a small group of 20 Screenshots readers. I hope readers goks, DELL, Vaseau, moo_t, Mithos and all, who asked tough technical questions that I can handle, will make time to attend this FACE-2-FACE with TM, which I am organising soon. TM has told me he won't run away or hide behind computer screens.

Posted by: Mithos | July 10, 2006 02:33 PM

Mahaleel said Proton paid RM350m for goodwill? Sounds like a swindle to me. What was Agusta's net asset position then?

As for TM`s question that Gevi Spa saw value in MV Agusta, that is right. After all, their risk is only RM1!

So how on earth did TM arrive at the buying price for Proton?

Posted by: mack | July 10, 2006 02:55 PM

"So, if we assume ( a ), ( b ) and ( c ) are alll correct, add them all up, and the then value of MV Agusta is almost RM1 billion.

MV Agusta had debts, some were frozen, of almost RM500 million. So nett value of MV Agusta then was almost RM500 million."

The above is extremly interesting.

If TM is rite,that the government gave away RM500 nett value in exchange for EURO 1,the government should fall immediately.

But seriously I do not believe it,is it that simple?

Well,AAB should answer,and answer fast.It is very simple,just tell us what is the NTA of the company when it was sold,and how was the valuation arrived at for all Malaysians to judge and decide!

Posted by: DELL | July 10, 2006 03:07 PM

Sorry Jeff,

Proton's side of story

"The rationale given by the present Proton management on the disposal of MV Agusta is as follows:

* The entire purchase consideration of RM367.6 million was treated as goodwill and written off in the financial year ended March 31, 2005.
* The additional provisions relating to MV Agusta in the accounts of the Proton group for the financial year ended March 31, 2006, amounted to RM136.2 million.

In my humble opinion,to write off the entire purchase consideration of 367.6 million within one year after purchase was not fair,some one must give a good explanation.

The additional provisions relating to MV Agusta in the accounts of the Proton group for the financial year ended March 31, 2006, amounted to RM136.2 million.-this amount,I believe should have been included in TM's calculation of total debt of RM500 million.

AAB must explain!!!

Posted by: DELL | July 10, 2006 03:17 PM

TM said:

"Let me ask you this: Assuming it is NOT the management and the Board of MV Agusta who recommended Proton to sell MV, and making such such a big loss, then who made that decision? And why?"

This is not a clever statement,of course Proton as the owner of MV,has the full power to decide what to do.

Why should they as the owner depend on the opinion of the management and the board of the loss making company MV to recommend?I do not think any owner would ever do that.

Posted by: DELL | July 10, 2006 03:24 PM

1. Was Tengku Mahaleel and the Proton Board then, aware of the contingent liabilities of RM923.1 million which Proton will be subject to, if MV Augusta goes into bankcruptcy? If yes, why proceed, and if no wasn't due diligence done?

2. If GEVI SpA.is "an upstart with no track record" would MV Augusta's creditors and bankers have approved of the sale, considering the huge liability its has to assume?

Posted by: daniel | July 10, 2006 03:48 PM

OMG, LOL!

the Q&A session is actaully Q&A&Q session..

majority ended with questions instead.

wow Jeff, by that time it'll be 21 vs 1, fair to TM kah?

;)

Posted by: Vertebrato | July 10, 2006 04:07 PM

Tengku Mahaleel is right when he pointed to the success model experienced by BMW, Honda and Suzuki, which are automobile giants who first started off as motorcycle manufacturers. But PROTON is a different cup of tea entirely. While the three companies started off as motorcycle manufacturers, it was the sign of the times then, the end of the second world war and to get into the automobile straight away may prove to be a disaster. So, very prudently, they started on a small scale, ie with the motorbikes and later as the business grew and the national economy is getting better, they upgraded their business model to manufacturing cars. PROTON is doing it the other way round and at a very bad time too. They went into cars and then into motorbikes, when the competitors already have a foothold here. PROTON have to find their niche and stick to it. Going into so many things only make them look very "rojak". I say that PROTON has to start re-positioning itself, and fast!

Posted by: William D | July 10, 2006 04:09 PM

Jeff,

Thanks for the invite, hope am in town. However, i think a better qualified person to invite is Chips. He knows TM personally, have had his own share of bad experiance with the Proton Mgmt.

On the above article, i am trying to piece some things togather.

1) TM says, in nett, Augusta is worth Euro 500M. But, this is with the assumption, Augusta's assets are STRIPPED!, plants SOLD! Also, who is going to buy the Euro 60m worth of shares? Helooo ....
...someone..please correct me if this assumption of mine is wrong!

-- Didnt proton say that minority share holders can stop you from stripping assets?

-- Also, Mahaleel basically means if cash is tight, no prob....coz MV is asset rich...can liquidate!

If this is what he's trying to say, i think he's as good as the OLD senile man in deceiving malaysians. He obviously doesnt know italian law or economics well..i cant blame him..he's a sales man!

Agusta needs liquidated cash to sustain its operations! Obviously he didnt touch this topic... but he's more keen why seel at 1 Euro if the assets are worth 500M .

My question to you old TM, what is 500M of assets if you can NEVER EVER liquidate it? Becoz you have NO management control of Augusta and you have NO power to strip Augusta of assets because minority share holders wont allow you to do so?

God, either he's so think skin or he takes us for idiots!

Economic Guru's, please rebut me if my assumptions werw wrong.

Posted by: goks | July 10, 2006 04:56 PM

Dear Goks,

Let me add my humble feedback:

(1)As far as I can see,the RM500 is correct as TM has taken into account all the changes,sales of assets right up to the point of sales,so there shouldn't be any argument.

The main point of difference here is whether the good will of RM367.6 million should be written off within one year,which I think,to be as objective as possible,should not be.

TM was also talking about EURO60 million of stock(inventory)not shares,I assume that the necessary provision must have been made for stock damages,for obsolete stocks,etc,so the figure of EURO 60 million probably referred to stiock which cold be moved to the market given sufficient time to sell.

I agree with you that the book value of the plants at EURO 80 millin is almost next to impossible to realise,I am not too sure about the goodwill part as there is the possibility that some suckers might emerge to pay some money for good will,as Proton did.

Ultimatley it is a judgement call,whether it is wrothwhile to pump more money into a deep,black hole.

The present management of Proton is saying,we are not going to pump in more as we do not see the possibility of MV making profit for at least a very long,long time duration,and we have other more urgent tasks in our hands.

TM/TDM are saying:this is a very good thing,whatever they need,just give,in time to come,MV would make tons of money for Proton.

This is the question which I feel I am not qualified at all to answer

Posted by: DELL | July 10, 2006 05:16 PM

Dell,

One more thing. TM Sr. & Jr. said that MV purchase was to realise his dream of an RM10K car.

I think this is further childish statement to make if one thinks building a low cost engine will make an affordable car.

Even if i were to supply Proton with an ENGINE free of charge, they will NOT be able to build an RM10K car for obvious reasons. If he learnt maths, he knows that his metal, parts, paint, finishing and G TAX will up to the total.

I wonder how long The TM's will continue to deceive innocent malaysians on they're issues with MV Augusta.

I agree with your statement that it was proton's decission not to pump in more cash into MV for obvious reasons.

Even if they had the cash, they need it badly to deiversify their product range. Does TM feel that proton should continue to bleed into MV for more years while sacrificing local product growth? He's must be utterly silly to feel so.

Posted by: goks | July 10, 2006 05:23 PM

DELL: "TM/TDM are saying:this is a very good thing,whatever they need,just give,in time to come,MV would make tons of money for Proton."

____________

Companies can only make money in COMPETENT HANDS. Look at Air Asia - it was loss making and heavily indebted while under DRB ownership. Look at it now after being sold for RM1 to Tony Fernandez and team.

Posted by: banjaran | July 10, 2006 05:38 PM

banjaran,

I must share one thing with you though. I agree, if proton were in good hands, it would be much better off.

However, related to MV's purchase, it wont be comparable to AA. This is simply becoz of the Italian law, minority share holders right and also labour laws in Europe which you can run away from.

When Tony got AA, he was free to do anything :) ...Proton unfortunately, wasnt as free as it throught it would be, thanks to somethings TM overlooked, like the ones i mentioned above.

Posted by: goks | July 10, 2006 05:50 PM

Goks: "However, related to MV's purchase, it wont be comparable to AA. This is simply becoz of the Italian law, minority share holders right and also labour laws in Europe which you can run away from.

When Tony got AA, he was free to do anything :) ...Proton unfortunately, wasnt as free as it throught it would be, thanks to somethings TM overlooked, like the ones i mentioned above."

OK. Point taken.

Posted by: banjaran | July 10, 2006 05:56 PM

Hi Jeff, I wish to meet TM if there's still space for the Screenshots readers meet. :)

JEFF OOI says: Sure thing. I won;t monopoly over this dialogue. I will make a free-for-all in the Q&A as much as I can. It will be on after the series in four parts is completed.

Posted by: Paul Tan | July 10, 2006 05:59 PM

'( a ) Did the present Board know that MV Agusta had about €60 million (RM300 million) worth of stocks for sale as at September 2005?'

RM300million of stock? what stock? is it saleable? TM never tell you that.

Is it like Proton stock of wira and iswara now? unsold RM1bil of stock

c'mon la TM...

Posted by: rosman | July 10, 2006 06:34 PM

The track record of Honda are not comparable to MV. In day 1, Honda are making something commodity, before they venture into superbike business.

Whereas, TM are buying a niche product. Something that your cannot mass produce and depends small group of buyers.

As lesson learn by Iridium , niche market are dangerous unless you can secure income to sustain the cost.

Fashion brand, most luxury product does establish a large base of fix customer and continue to get new one. Those business are easily accessible, unlike MV Agusta, which contraint to rich bikes enthusiast.

When running a business like MV, the cost of making the bikes will decide the fate of the business. Although MV Agusta does meet liquidity requirement in 2004, the company future still remain cloudy.

When injecting RM300 millions in exchange of stock to make MV afloat; although cheap, TM should lay the plan to isolate MV Agusta financial from Proton. He should know that MV will not pay back in short term but in a decades. Attaching Proton funds with MV Agusta is a bad idea as it will drag down Proton flexibility in long term to stay competitive.

In addition, TM keep talking about his lone ranger works and vision. It is a DISASTER when an individual think he can outsmart his competitor which employ a huge team of thinktank.

Posted by: moo_t | July 10, 2006 09:36 PM

moot_t,

Very well put, on the part of an individual thinker outdoing a group of think tank!

To have correct facts in hand, i still wish Jeff would invite Chips Yap for this discussion. BUT .... i wonder if TM is willing to meet face to face with chips.

JEFF OOI says: I have had private email exchanges with Chips after I posted the teaser to this series, and we discussed the possibilities of having a conversation with TM, including the technical long term plan. However, I am not at liberty to reveal what we discussed as those were private conversations we had between Chips and me.

Posted by: goks | July 10, 2006 11:00 PM

Oh Jeff okay now what...are you are out to prove that TM is after all innocent? Can you explain how he runs the former company (Proton), and yet we should just close our eyes and listen to his argument?

JEFF OOI says: How silly you! It's not for me to prove another's innocence or guilt. In a parliamentary democracy like ours, that's the job of the Judge. Fact one: I don't run Proton. Fact two: TM once ran Proton but he no longer ran Proton after June 2005. Fact 3: Someone else with Azlan hashim as the Proton Chairman run Proton right now. Faced with information dished out in the mainstream media and disclosure to Bursa Malaysia, we have no other sources of information to know the inner workings of the public listed company. Hence, right-minded people would not resort to hearsay and would not close one-eye to the financial health of a strategic industry that has been invested with billions of national coffers, that may drill down ultimately to taxpayers' money.

For a start, we can take July 2005 till June 2006 -- one financial year of four financial quarters -- to look at Proton's financial health. The truth is truer if we looked at the figures -- P&L, cash flow and operating capital, inventory, market share, R&D roadmap and committed investment etc -- I don't think we can even close an eye to any of these!

This man seriously has no credibility - talk to ANY MOTORING JOURNALIST!!! Dont meddle politics with professionalism.

JEFF OOI says: But when you say "this man seriously has no credibility" you better be sure you can substantiate your claims and allegations in a court of law or -- under Malaysian legal framework -- you are liable to libel and defamation. Don't argue with me, just go consult your lawyer or rad up Defamation Act. But writing your commentary in my blog, you left behind your digital trail that points to the computer terminal you are using. If I am subpoenaed to testify against you for what you said in this blog, I have no recourse but to offer myself as a friend of the Bench with all the evidence. I support free speech but I don't and I can't condone libel and defamation, and libel and defamation, I fear was what you just did. And you preached on politics and professionalism? Ptooi!

Seriously.. I have sensed you are not just blogging as 'normal person'.. you are doing this for something and it is getting clearer now.

JEFF OOI says: This is what "THIJK ALLOWED, THING ALOUD" is all about. We probe issues by rational thinking, no drooling, no trolls. Present all sides of the coins, and Malaysians will decide for themselvesves in making their own conclusions. I am glad this is definitely getting clearer to my readers. If you can't handle this basic principle of free speech, that's your own bloody business. No pity on you.

I dont know whether I should
- ignore, just laugh and go away
- sad, not knowing what to say
- retaliate by giving back the facts

JEFF OOI says: The choice is yours. But we would CERTAINLY like to see what you have that you call facts. Truth can only be truer when facts collide. Come, come, come enlighten us!

Posted by: syedhs | July 11, 2006 01:51 AM

Thanks for the info. Good to know you are talking to Chips.

Actually, after all the shit has hit the ceiling, one needs to know what the objective of the meet would be. Most Malaysians wants answers, but then, i think whats better to do is to plan, how to tackle the future for Proton!

I hope You guys can tackle both. Chips has allot of good input for the future. As for the past, i'm sure he has questions too.

I look forward to your Jeff, Chips & TM TT series :)

Posted by: goks | July 11, 2006 09:19 AM

I have some technical question.
a) Why did proton rejected Petronas offer of a 6 cylinder 2 litre engine. Some arrangement could have been made to produce the engine at no cost to proton in terms of R & D and tooling.?
b) How come the waja/Gen 2 platform is producing only saloon cars and not other variants such as MPVs (say in similar form to the Fiat Multipla in a 3 + 3 sitting configuration) for the family man. It is common knowledge that by utilising similar plarforms (because making platforms is expensive) a manufacturer can produce many variants of a vehicle, thus capturing a bigger market at less cost in production due to platform sharing.(e.g civic/CRV/Stream and Camry/Harrier)
c) Why did proton use a renault 1.2 engine on the savvy instead of a campro 1.3.(or even a campro 1.2/3 cylinder engine)
d) Who actually design proton cars. was it lotus or proton.?
e) Who actually design the campro engines. Was it lotus or proton. If it was design in Lotus UK, what was the knowledge gained by locals in engine/car production?
f) Why couldn't Proton subcontracts engine/gearbox manufacturing to a third party thereby saving cost and allowing others to participate in the national car maker?
g) Why was it after you left proton, it was manufacturing similar sized saloon models (Waja/wira/iswara/gen-2/savvy). there does not seems to be any major size gap that I can detect. And all on different platforms?
h)Why was Perdana not differentiated as a totally upmarket brand with its own range of cars?
i) how much did it cost proton to introduce the Juara to the local market?

I do not wish to be part of the group meeting with TM for roti canai and teh tarik for fear of emulating Zinedine zidane's famous head butt. I hope you can convey the questions to him.

JEFF OOI saysd: Come on! Don't take that holier-than-thou attitude or try to insult us by making us your messenger boy. You take care of your questions and we will take care of ours -- we have our own set of questions too.

Posted by: sydput | July 11, 2006 04:43 PM

Oh I left out one more question. Why is AAB accountable for the runnings of proton when it is already a listed entity with the government under khazanah a major sharholder? Shouldn't the queries on selling of agusta's shares being forwarded to the present CEO, who heads the company, and not the PM.?

why was the queries on selling of shares be directed to the government? And is proton required to reply to somebody who is not a stake holder of the company?

JEFF OOI says: To put things in perspective, nobody implicates the present PM. All the questions, as far as we can read, and by speaking directly to TM, is posed at the present Proton management. As Khazanah -- who manages taxpayers' money -- owns a controlling stake in Proton, hence the Treasury cannot have a dereliction of duty over the money invested. You shifted our attention. Where's the beef?

Posted by: sydput | July 11, 2006 04:53 PM

fair enough jeff. I will see what sort of questions being put to TM on this blog. I hope it is not focused on Agusta issue.

Posted by: sydput | July 12, 2006 05:12 PM

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One morning with Tengku Mahaleel... ( 2 )

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