Former Prime Minister Mahathir Mohamad displayed amazing recalcitrance, when confronted with the latest iron-clad evidence that Proton�s earlier takeover of Italian motorcycle manufacturer M V Agusta Motors SpA was an unforgivable blunder (under the previous management). Mahathir was not only not remorseful, but continued to fling frivolous accusations at the present management of Proton for disposing Agusta.
Let us first look at why buying Agusta was such a huge folly. Agusta, a manufacturer of the priciest motorbikes for a niche market, was a total commercial flop at the time of acquisition, for the following reasons:
a. Agusta�s net asset was negative, meaning that its total liabilities exceeded its total assets.
b. It had been loosing money for six consecutive years to the tune of 120 million euros.
c. Average sales were 14,000 units a year for the past 6 years, while it needed to sell 44,000 units a year to breakeven. There was no prospect of substantial increase in sales due to the nature of its products � specialized and expensive.
d. It was burdened with huge debt, and there was no visible profit in the foreseeable future to offset it.
Synergy
A commercial entity with such miserable financial data and prospect could not possibly be a viable takeover target, unless it could provide justifiable synergy to the investor. So, the only possible justification for Proton to acquire Agusta was one of synergy. But could Agusta really provide synergy to Proton? The answer was an obvious no.
Being a motorbike maker, Agusta had no expertise in automobile manufacture. In fact, it didn�t even design and make engines for its own high capacity motorbikes. It had to buy these from others, due to the lack of economy of scale to make its own. Needless to say, its experience in designing motor car engine was nil. Knowing the low level of Proton�s indigenous technology, it was unrealistic to expect the technologists in Proton to work up any meaningful synergy with Agusta, to whom car making was completely alien.
It was therefore a foregone conclusion that Proton�s performance should be dragged down by Agusta. And indeed Agusta continued to suffer heavy losses, requiring Proton to pump in large sums of money, making its total cash hemorrhage to 100 billion euros. Without the possibility of synergy and without any prospect of turning Agusta around, Proton had no choice but to dump Agusta to avoid further massive draining of Proton�s cash resources.
The responsibility for this financial fiasco must therefore be borne fully by the ones who decided to buy Agusta, not the one who disposed of it.
But Mahathir held on to the opposite view. He was adamant that buying Agusta was a good investment decision. He criticized Proton�s disposal of Agusta for one euro as a mistake attributable to Proton�s lack of engineering knowledge and understanding of the automotive industry.
Mahathir�s argument was that �motorbike companies have a lot of engineering knowledge�, citing the case of Honda starting off by making 50 cc motorcycle but ending in making some of the best cars in the world. He concluded then:
�It is possible for a motorcycle company to contribute to the development of motor
cars. That is why Proton bought Agusta, it was an investment in a company that produces the best bikes in the world�.
Mahathir's logic
So, Mahathir�s logic is this:
1. Honda moved from small motorbikes to high quality cars, so motorbike makers
must be good for car makers.
2. Since Agusta makes good motorbikes, therefore Agusta must be good for Proton.
3. Proton�s management thinks Agusta is bad for Proton, therefore these people
are ignorant of the car industry.
A school boy holding the above views may be pardonable, but for a prime minister who founded Proton and went on to control it for two decades and finally acting now as its adviser, Mahathir�s above views are shocking and horribly na�ve. With such mentality from Mahathir, is it any wonder that Proton has been such a problem child for this country, burdening the consumers all these years?
It is true that Honda started with motorbikes and went on to make good cars, but that process took many years, and it is a rare exception (perhaps the only case) that a motorbike maker ended up as maker of top cars. The technologies of making these two products are so different that it is inconceivable that any problematic car maker should contemplate upgrading its operation by acquiring a motorbike maker.
Honda�s success as a car maker was attributable to the ingenuity and entrepreneurship of its founder and his team over several decades of hard work, and certainly could not be taken as testimony that all motorbike makers could contribute to making good cars.
As for Agusta, whether it makes good bikes or poor bikes is irrelevant. Unless it can provide synergy, it is utter stupidity to pay a high price for a company of negative asset that makes heavy losses every year with no prospect of turning it around. As for synergy, only another motorbike manufacturer could hope to achieve synergy with Agusta.
In spite of Mahathir�s denial of wrong doing in the acquisition of Agusta, he however betrayed guilty conscience when he resorted to his favourite game of blame-shifting.
He claimed that the decision to buy Agusta was not made by Proton�s board and its chief executive officer alone, but by �every one� including Khazanah, all of whom had studied the project. This claim certainly contradicted the announcement by Proton�s chairman Mohd Azlan Hashim on Mar 28 when he disclosed the full details surrounding the entire saga of Agusta.
Adviser and Proton
Azlan revealed the startling news that the board only came to discover the pitfall of Agusta in August 2005, after former CEO Tenku Mahaleel Tengku Ariff had left the scene. Among the bad news was that Proton had pumped in tens million of euros into Agusta without the board�s knowledge, and that minority shareholders of Agusta retained veto power and prevented Proton from taking full control of the company. To be honest, Azlan�s revelations did not come as a complete surprise, as it was common knowledge that the then CEO and its adviser ran Proton like their little fiefdom.
Azlan had said Proton did not intend to pursue its former management for causing this financial disaster. However, in the interests of transparency and good governance, and as custodian of public assets, Proton owes the taxpayers and minority shareholders the obligation to seek redress for this inexcusable mishap in a professional manner.
Only through an honest probe without fear and favour into the hows and whys (particularly the criminal elements if any) of this misadventure and bringing the culprits to book, could we improve governance and restore public confidence in the government�s handling of its companies.
As for Mahathir�s recalcitrance in the face of overwhelming evidence stacking up against his stance, one cannot help but wonder: is it plain dishonesty or is he suffering from the deaf and blind syndrome?
No comments:
Post a Comment