Malaysia Proton in tie-up talks with Peugeot-report

KUALA LUMPUR, May 6 (Reuters) Malaysian state-controlled carmaker Proton Holdings is in talks with French carmaker PSA Peugeot Citroen to collaborate on the development and manufacture on new models, a business weekly reported.

The talks between Proton and PSA are believed to involve the development of a car for the Southeast Asian market that can be marketed either as a Proton or a Peugeot/Citroen, the Edge said, citing unnamed sources.

PSA may eventually take up an equity stake in Proton, it said, adding that senior management of both companies have met and are likely to sign a memorandum of understanding in a few months.

Proton officials could not immediately be reached for comment.

The weekly also quoted sources as saying Proton's shareholders and the Malaysian government had resumed partnership talks with Germany's Volkswagen AG . In January the German firm pulled out of a joint venture plan with Proton after it failed to win control of the Malaysian firm.

Volkswagen, the world's fourth-largest car manufacturer, had been seen as essential to Proton's survival in helping it fend off foreign competition, according to analysts.

Proton and Volkswagen may be looking into setting up a new company, which will jointly develop models that will be badged as Protons and sold in the domestic, Southeast Asian and Indian markets initially, the Edge said.

Proton will have a 49 percent equity stake in the new firm and Volkswagen 51 percent, with Proton injecting its manufacturing, engineering and sales divisions into it.

Volkswagen has already designed a new platform to develop at least two new Proton cars, which could go into production ''in a matter of months'' for the Southeast Asian market, the weekly said.

Proton Managing Director Syed Zainal Abidin Syed Mohd Tahir said this week that Proton was expected to finalise a recovery plan and seal an alliance with a strategic partner by the end of this year.

Proton was among Malaysia's worst-performing companies in 2005, after competition from foreign carmakers and a lack of new models lost the firm local market share and subsequently led it into a loss. It has since brought in a new chief, sold its loss-making MV Agusta motorbike firm and pledged to find a new technology partner.

REUTERS MP KP1923