More on Group Lotus

Syed Mokhtar Al-Bulkhary’s DRB-Hicom’s managing director Mohd Khamil Jamil has told Malaysian reporters that it is open to selling Group Lotus. This is no surprise. DRB-Hicom said that it has not had time to do due diligence on Lotus. There have been rumours in F1 circles since September that Group Lotus would be sold to Gerard Lopez’s Genii Capital, which owns the Lotus F1 Team. It was rumoured that he was putting together a consortium to buy Proton from the Malaysian government and would then divide up the company between the buyers. Syed Mokhtar was mentioned at the time, a Malaysian being needed to stop criticism of the government selling the national car company to foreigners. DRB-Hicom says that it plans to delist Proton from the Malaysian stock exchange and will expand its automotive businesses, which include assembling foreign cars for the Malaysian markets.

In the autumn there was due diligence done at Lotus by Genii, although at the time Proton denied that it was selling the British company. We have also heard rumours that Geniihas been very busy in the finance markets, trying to raise money for the purchase. It is not clear whether this money was found, but the suggestion that Group Lotus is for sale would suggest that perhaps Lopez was not able to close the deal that he initiated. Time will tell. What is clear is that Genii continues to want to acquire a car company. It should be remembered that two years ago Genii and Bernie Ecclestone made a joint bid to buy the Saab company from General Motors. This failed and the Swedish car firm was sold to Spyker, which was funded by Russian banker Vladimir Antonov. Since then Saab has ceased production and filed for bankruptcy in December.

Group Lotus is the primary sponsor of the Lotus F1 Team, which will be running Kimi Raikkonen and Romain Grosjean in this year’s Formula 1 World Championship.

31 thoughts on “More on Group Lotus

  1. they won’t sell it immediately……need to restructure the GL from within to makes it looks nice…maybe after the release of 2 of the new brands….and boost the sales of the cars…thereby sell it with enough value to breakeven the loss !!

  2. This must be an exciting time for everyone around the world at the receiving end of Lotus sponsorship dollars.

    What I don’t understand is why Lopez would try to buy the company sponsoring his F1 plaything.

    If you’d own Lotus, one of the first moves to get it viable would probably be getting out of this useless exercise in burning money, and concentrate on actually getting product ready and out, preferably before the end of your runway. If you’d own Lotus F1, first order of business would be to find someone willing to replace them once they fold or get out of their deal on their way to a new owner.

    The two interests seem mutually exclusive. What’s the game plan here?

  3. “This is no surprise. DRB-Hicom said that it has not had time to do due diligence on Lotus”
    This looks horribly like Lloyds, under pressure from the previous government “saving” HBOS, without due diligence, which has been their undoing.
    I suppose at the end of things there will be a debt for equity deal, the only problem is that the equity itself is just black hole of more debt.
    I would imagine that “open to selling Group Lotus” really means ” *****!!! do they really owe that much?” “Get rid of them asap”

  4. So what do we make of Lopez? He certainly seems to be able to cause the automotive earth to move in Malaysia — but then so could a certain well-hairsprayed gentleman who we need not name. The progression of bank “sponsors” across the Renault two years ago did not inspire confidence, either.

  5. DRB-Hicom say they have been looking at Proton as an acquisition for several years. I am sure they know all about Group Lotus and its sad commercial history.
    They have niche assembly contracts with Westfield cars. Mainstream assembly is undertaken for Volkswagen and others.
    They could start assembling Lotus cars in Malaysia, along with Westfields. At the moment Lotus produce less than one car a day. There plan is to produce about three a day.

    Lotus gained its reputation in racing and its innovative engineering solutions. This is where the value lies.
    Do they have a plan to unlock this? Maybe. Time will tell.

    1. I have been doing some research since the announcement and it seems that the Lopez bid for Proton/Proton was finally rejected, which explains what has now happened. This is not such good news for Lotus F1 Team because the new owner of Proton clearly does not want Group Lotus, as it has in effect asked for bids. Any new owner may also NOT want to spend the kind of money on F1 that Group Lotus in its current form has signed to invest over the next few years and might – if the F1 contract is watertight – mean that buyers would be put off, unless they see F1 as a way to sell more cars. Their goal (unless they have very deep pockets) will be to make the company profitable as quickly as possible, and rather than spending bucket-loads as the current management is doing, they might decide to cut bucket-loads instead. Again, time will tell.

      1. My understanding was that Genii were involved in the negotiations between DRB-Hicom and Proton?

        One would imagine their eyes are only on Group Lotus.

      2. O, then maybe Lopez can’t move all that much earth after all.

        Can’t see TF buying Group at the moment though — although I’d like to see that almost as much as I’d like to see Williams winning a race this year. TF seems more inclined to grow from seed or buy distressed assets at fire-sale prices and build from there — buying a heavily-leveraged iffy business with even more leverage doesn’t really seem like his cup of meat.

  6. Hi Joe,

    Does this not all pave the way for Tony Fernandes to buy Group Lotus, integrate with Caterham Cars and achieve his ambitions of selling Lotus Cars in Malaysia? Or is Tony happy for the moment with his recent purchases of QPR and Caterham?

    Great blog as ever!

    Kris

    1. In regard to the questions about Tony Fernandes, I was reading one of the Singapore papers last week and there was an article that described this situation and the three potential bidders for the purchase of a share of Group Lotus from Proton. I think it may have been 40% but didn’t save the article. One of the suitors was not Tony directly but was NAZA which should look familiar to followers of Lotus Racing and Team Lotus. I don’t discount the probability that within a short time Fernandes and his team will control Group Lotus.

  7. If this step had been taken before Tony F had changed tack, he might have been willing to pay to get hold of Lotus. I wonder who will go begging to whom now…

    1. Yes, but there was enough trouble thgis year getting name changes. What on earth are they all going to do if they all try to change again?

  8. Call me paranoid, but I wonder if Antonov did some financial engineering to bleed Saab of cash by making it take huge loans and then paid Antonov a dividend, such that it ended up in his Russian bank’s coffers? Perhaps that could be a reason why Genii won’t buy Saab given the bankruptcy – too many liabilities to take on?

  9. DRB-hicom not yet decided to sell Group Lotus as what I heard in Malaysian news but DRB-hicom representative already said that Group Lotus right now act as a parasites to Proton. This doesn’t sound good for Group Lotus.

  10. yes so what about fernandez? I it seems proton had bought Lotus for about 40 millions£ in 96. I guess the current value can not be a much different than that.
    And probably in the range of investment possible for TF, also does not Hicom would gives some prorities to another malaysian group, which could give an adventadge tpo TF if he bid?

  11. “DRB-Hicom say they have been looking at Proton as an acquisition for several years. I am sure they know all about Group Lotus and its sad commercial history.”

    DRB Hicom were shareholders when Proton bought Group lotus from Romano Artioli. I still have the DRB Hicom brochure from the staff launch party. They subsequently sold their share holding to the Government, as I understand it. This is just them buying proton back. And yes for sure they will want to get rid of the Lotus debt mountain as fast as possible.

    Great research Joe, excellent blog as usual

    IainT

  12. One has to wonder if the company would have been better off if Tony Fernandez had been allowed to take control of GL when the time was right… on the other hand it seems like Catheram is taking all the right steps to ensure it’s future, it may end up benefiting from a lot of former Lotus customers when that brand is taken upmarket by mr. Bahar.

  13. If Group Lotus are to be sold, and maintain their F1 involvement, another Proton shareholder, Petronas the national oil company and sponsor of Mercedes F1 and Yamaha MotoGP could be a buyer with deep pockets.
    Dr Mahathir is the Advisor to Proton and Petronas he is also responsible for bringing F1 to Malaysia.
    DRB-Hicom would be divesting its interest in Group Lotus, whilst keeping Lotus Malaysian. Politically correct.
    Petronas are a Fortune 500 company, and could see any turnaround plan executed.
    Just a thought.

    1. Ex MotoGP sponsor. Petronas/Malaysia – I like your train of thought there John.

      I am still convinced Genii have more up their sleeves though.

      With this huge potential spanner in the works, I bet Joe’s rubbing his hands together with this one!?

  14. Joe, it is true that Genii has been in the markets and still is looking to put together a package for Group Lotus. They are part of a small consortium, but want to head it up.
    They face two problems which you have highlighted, that is the link to the F1 Team, and a cash drain that a F1 team causes, if it doesn’t have enough sponsorship or isn’t winning on the track.
    If the F1 team is winning on the track, then that translates into possible sales of road cars. Ferrari is a classic example of this.
    The second part, which people do forget, is the ongoing R&D done in a F1 environment, which can be easily slotted into your road car production at a realistic cost, compared to buying in the technology.
    So there are risks of running a F1 team, and then the flip side is on the road car company with the up to date R&D – new technology, which can be moved across a lot easier and cheaper, so cost saving, and these could be in the many millions.
    Lotus Engineering is a world class bunch of people, and many road car companies come to them to sort out there chassis, if you add in some F1 R&D, you could be on a winner. That equals some nice cash flow for the business.

    1. The R&D aspects of F1 are becoming less and less relevant to road cars though.

      Engineering as a discipline has matured a lot in the past 40 years and the detailed analysis that goes into an F1 car is in different facets of the design or looking for different things to a road car.

      This might be okay if you’re Ferrari designing £350,000 super cars made from titanium and carbon fibre, but the usual Lotus target sector is the mid-priced lightweight, sports car.

      Problem is, there are really two things you need to compete properly in that sector : price and (relative) comfort.

      Price (or rather, value for money) is about mass production and getting your materials and assembly right. F1 won’t really help you for this, it’s a piece-work handmade-to-perfection industry.

      Comfort is about not alienating those people who, much as they enjoy a nice nippy fast car, also want to arrive at work able to walk and fairly happy. It’s one of the reasons that the Mazda MX5 has crushed Lotus sales.

      There’s other things too, Reliability and Drive-ability, neither of which are the direct opposite of performance but they require sacrifices. NVH, which no-one in F1 gives a jot about. Certain electronic systems with no-one in F1 is allowed to give a jot about. Usage cycles and part lifing is totally different between F1 and the real world as well, the list goes on and on.

      Now I’m not saying that making an F1 car gives you nothing towards making a roadcar. But in this day and age the margins in F1 are so fine (the margins in roadcars too) that the R&D is too specialised to be of much

      Increasingly, F1 R&D is better related to other high-tech industries like CGI* than it is to car design.

      * = have a friend who is in the sharp end of fluid animation in computer effects for films, who recently got visited by Mercedes AMG to talk about sharing technical developments.

      1. You are right, apart from the fact that the 2014 engines will be taking F1 right into the cutting edge of automotive development…

  15. Joe, are there rules about how many F1 teams an individual is allowed to be involved with, if so this may stop TF from purchasing Group Lotus.

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