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Momentum in VW talks with Proton over tie-up

From AGENCE FRANCE-PRESSE | June 18,2007

Malaysian carmaker Proton and German auto giant Volkswagen are cautiously edging towards a partnership after a second round of talks in Thailand, officials said Sunday.

"Negotiations between Proton and Volkswagen are ongoing," said Ahmad Shahizam, spokesman with the Malaysian government's investment arm, Khazanah Nasional.

The first round of talks was held in New York two weeks ago and the second round was held last week in Bangkok.

Khazanah Nasional is the controlling shareholder in Proton, with a 42.74 percent stake in the company. State pension fund EPF and national oil firm Petronas own 12.07 percent and 8.84 percent, respectively.

The remaining 36.35 percent is held by a mix of local and foreign companies.

Another official familiar with the talks said negotiations were centered on "working out a solution to allow Proton to have a strong foreign partner."

"The government is open to all positions. The idea is to make Proton a commercially viable company," the official said.

"I suppose there will be several more rounds of discussions between the two parties. There is momentum set in place to form a partnership."

The Malaysian team comprises officials from the prime minister's department, the ministry of finance and Khazanah.

Asked if Volkswagen would be allowed to hold a majority stake in Proton, the official said: "That could happen. Nothing should be ruled out. Volkswagen could have a majority stake in Proton."

The Star newspaper Saturday reported that Volkswagen had indicated that "Proton should be run as a business concern, meaning that everything had to be evaluated from the quality, efficiency and commercial standpoint."

In the past, analysts have partly attributed difficulties in forging partnerships to the government's reluctance to cede control of a key national company to foreign hands.

Malaysia's government is under intense pressure to announce a partnership for Proton in an attempt to provide it with expertise to stem a sharp decline in market share and cut financial losses.

The loss-making company last year lost its status as Malaysia's biggest- selling automaker to homegrown rival Perodua.

A previous attempt at forging a deal with Volkswagen broke down in January last year after Proton rejected what it said were "inappropriate" plans by the German carmaker to exert control over the Malaysian firm.

Proton recently reported larger than expected net losses of 591.36 million ringgit (HK$1.32 billion) for the year to the end of March.

The carmaker blamed weak sales and higher production costs for a reversal from the previous year's profit of 46.69 million ringgit.

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