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Last Updated: Friday, 13 January 2006, 07:40 GMT
Proton hammered as deal collapses
Proton Gen-2 car
Proton faces increased competition from Japanese and Korean rivals
Shares in Malaysian carmaker Proton have taken a hammering after Volkswagen dropped plans to invest in the company.

The stock tumbled 19% to 5.10 ringgit, a four-and-a-half-year low, before recovering to trade at 5.60 ringgit.

Speculation has been swirling since the middle of last year that Volkswagen may buy into state-controlled Proton.

Volkswagen is looking to tap into the growing Asian market, while Proton wants access to new technology and help in protecting its market share.

'Not materialise'

Europe's biggest carmaker had been looking to buy a significant stake and gain a big say in the management of Proton.

However, Malaysia owns a 42.7% share in Proton through its investment arm Khazanah Nasional, and it is thought the state was unwilling to ditch its controlling 'golden share' in the company.

A 'golden share' gives the holder a veto right in any vote regarding plans for the company.

"We had a very specific idea how we wanted to proceed there," said Volkswagen's chief executive Bernd Pischetsrieder.

He explained that: "Unfortunately, the Malaysian government, Khazanah and Proton had different ideas. Therefore what we wanted in the cooperation with Proton will not materialise."

While the collapse of the talks will be seen as disappointing for Volkswagen, the implications for Proton are further reaching.

The company is facing stiff competition from other Asia rivals that have been eating into its market share.

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