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Billionaire Syed Mokhtar’s DRB-Hicom to Buy Control of Lotus-Owner Proton

Billionaire Syed Mokhtar Al- Bukhary’s DRB-Hicom Bhd. (DRB) agreed to buy Lotus sportscar-owner Proton Holdings Bhd. (PROH) for 1.29 billion ringgit ($410 million), in Malaysia’s biggest automotive takeover since 2000.

The automobile assembler will buy 234.7 million Proton shares, a 43 percent stake, for 5.50 ringgit apiece from state- owned Khazanah Nasional Bhd (KNBZ)., DRB-Hicom said in a statement today. The offer, which is 6.2 percent higher than the Malaysian carmaker’s last closing price, will be extended to all remaining stockholders, according to the statement.

Proton, headed for its second year of profit declines, paves the way for Syed Mokhtar to widen his share of the Southeast Asian country’s car industry and expand a business empire that already includes ports, airports and power plants. The agreement comes a month after former Prime Minister Mahathir Mohamad, who founded Proton in 1983, said he endorsed DRB- Hicom’s bid.

“There are lots of synergies that could be gained between DRB and Proton,” said Ahmad Maghfur Usman, an analyst at OSK Holdings Bhd. (OSK) in Kuala Lumpur. “Proton still needs a massive overhaul from DRB.”

Proton, up 93 percent since November, last closed at 5.18 ringgit before it was suspended from trading today pending the announcement. DRB-Hicom, which distributes and assembles vehicles for Volkswagen AG and Daimler AG (DAI)’s Mercedes-Benz, last traded at 2.17 ringgit before the stock was halted.

Bigger Than Switzerland

The offer values Proton at 24 times estimated earnings for next fiscal year, compared with the average multiple of 13 for the Bloomberg Asia Pacific Auto Manufacturer index.

Proton gives DRB control of two Malaysian car plants with the capacity to make a combined 350,000 vehicles per year --more than the total number of cars sold in Switzerland annually.

DRB-Hicom, which hired Malayan Banking Bhd. (MAY)’s investment banking arm for the deal, beat Proton Chairman Mohd Nadzmi Mohd Salleh, who had also sought to purchase the controlling stake in Malaysia’s first automaker from Khazanah. DRB, which may use internal funds or borrow externally to fund the purchase, said it expects to complete the deal by the second quarter.

Mahathir, who was Malaysia’s prime minister for two decades, said in a joint interview Dec. 12 that Proton should be sold to DRB-Hicom -- a company he described as being well-run and having the capacity to turn around Proton without undermining its vendors. Mahathir is a Proton adviser.

Malaysian Billionaire

Syed Mokhtar, 60, is the Southeast Asian nation’s second- youngest billionaire after Berjaya Corp. Chairman Vincent Tan, according to Forbes magazine’s latest rankings. His ties to Mahathir, who describes the Malaysian tycoon as a friend, stretch back more than a decade. About a year before Mahathir stepped down in 2003 as prime minister, he awarded a $3.8 billion rail project -- then the nation’s biggest infrastructure undertaking -- to contractors including Syed Mokhtar’s MMC Corp.

Selangor-based DRB manufactures, distributes and assembles a range of vehicles from motorcycles to garbage trucks for global carmakers from Volkswagen AG (VOW) to Suzuki Motor Corp. (7269) and Daimler AG’s Mercedes-Benz. It has eight assembly plants, of which four are for cars.

Proton, whose vehicles are driven by taxi drivers across Malaysia, are among the cheapest cars sold in the country. Profit at the company, which had two annual net losses over the past five years, is poised to fall 60 percent in the year ending March, according to the average of 11 analyst estimates compiled by Bloomberg.

Biggest in 12 Years

The deal is the biggest purchase of a Malaysian automobile- industry asset in 12 years, according to data compiled by Bloomberg.

The purchase builds on Prime Minister Najib Razak’s call for state entities to sell non-core assets to help boost stock market liquidity and attract investors. Khazanah has disposed of minority stakes in companies including DRB-Hicom, CIMB, Malaysia Airports Holdings Bhd. (MAHB) and Telekom Malaysia Bhd. (T)

“This is another significant milestone in our strategic divestment program as it represents the largest size to date,” Azman Mokhtar, managing director of Khazanah, said in a statement today. “The divestment is a further example of public-private partnerships.”

To contact the reporter on this story: Chong Pooi Koon in Kuala Lumpur at pchong17@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho in Tokyo at ycho2@bloomberg.net

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