Malaysia's ailing national carmaker Proton and Volkswagen AG are close to sealing a tie-up that will likely see the German firm take a 51 percent stake in its key assets, a report said Thursday.
Citing unnamed sources, The Edge Financial Daily said a new company would be created which will see Volkswagen, Europe's biggest carmaker, controlling key operations with the 51 percent stake.
Proton Holdings will hold the remaining 49 percent in the new company, which would encompass key assets including British subsidiary Lotus, as well as manufacturing, research and development, and engineering activities, the report said.
A 42.7 percent stake in Proton Holdings currently held by the government's investment arm, Khazanah Nasional, may also be taken over by state-linked conglomerate Sime Darby, The Edge reported.
A Malaysian government spokesman told AFP late Thursday that Malaysian officials had met in New York on Wednesday with Volkswagen representatives to discuss Proton.
“There was a meeting between Volkswagen and a Malaysian delegation which included people from Khazanah and the government, but I don't know who else was in that team,” said the spokesman, who asked not to be named.
“I would characterise the meeting as positive and the two sides have agreed to meet again.”
He said he had no details on the date and venue for the next talks.
The Edge said details were expected to be finalised at a meeting under way in New York between representatives from Volkswagen, Khazanah, Sime Darby and the prime minister's office.
Sime Darby denied The Edge report while Proton and Khazanah declined to comment.
“It is not true. There is no basis whatsoever to the report,” said a Sime Darby spokesperson, who asked not to be named.
Proton's share price gained Thursday on the news. At the close, Proton was up 0.60 ringgit (0.18 cents) at 6.45 ringgit on the Malaysian bourse.
Malaysia's government has been under intense pressure to announce details of a partnership for Proton in a bid to provide it with expertise to put a stop to a sharp decline in market share.
But Deputy Prime Minister Najib Razak said last week that any potential partner had to realise that Proton would never be allowed to fall under foreign control, state media reported.
The company last year lost its status as Malaysia's biggest-selling automaker to homegrown rival Perodua.
Prime Minister Abdullah Ahmad Badawi said on May 31 that talks with Volkswagen had failed but the next day a senior government official said negotiations were back on after Volkswagen requested a final round of talks.
A senior government official said last month that talks were also continuing with US automaker General Motors Corp.
Analysts said a deal with VW would bring no immediate relief for Proton.
In a note to clients, Hwang-DBS Vickers Research said a partnership with Volkswagen remains the preferred scenario, but “a gestation period of 18 to 24 months may be necessary in order for operational turnaround to take effect.”
TA Research said a tie-up with Volkswagen is “a step forward for Proton but it will still have to endure some pain in the short term due to huge inventories and declining sales.”
Proton last week reported larger than expected net losses of 591.36 million ringgit (174 million dollars) for the year to March 2007.
The carmaker blamed weak sales and higher production costs for a reversal from the previous year's profit of 46.69 million ringgit.
Previous talks with PSA Peugeot Citroen of France and Mitsubishi of Japan were unsuccessful.
The whittling away of import duties, and a persistent reputation for poor quality, have hurt Proton's market share in recent years.
