Porsche move closer to VW takeover

[Everso Biggyballies]

Porsche set to move closer to VW takeover
July 10, 2008 09:00 CET


WALDACHTAL, Germany (Reuters) -- Porsche will be one step closer to acquiring majority control of Volkswagen on September 2, when its deal to buy 4.9 percent of that company's ordinary shares takes effect.

The VW takeover "will be executed piece by piece," Porsche CEO Wendelin Wiedeking said during an event in the Black Forest on Wednesday evening.

A spokesman for Porsche said the deal closes on that day in early September.

The purchase of another 4.9 percent of VW common shares was necessary before Porsche could proceed with gaining regulatory approval from the European Commission, which required further proof a takeover was indeed intended.

Once Porsche has received the green light from various antitrust authorities, it plans to raise its voting stake in Volkswagen to over 50 percent.

[Oldtony]

Last night Volkswagen became the world's biggest company by value.
The shares of VW at one point reached E945 as investment groups struggled to cover shares that they had short sold in recent weeks expecting a fall in the share price, or the state of Saxony to sell it's 15% of shares. Between Porsche's holding, Saxony and other fixed share holdings there are now only 12.8% 0f the shares in the free market.
Porsche effectively controls VAG but has stated it is not buying more shares because the current price exceeds rational value.
Porsche might be great automotive engineers. They look to be even better financial engineers.
By the way VAG are seen by industry pundits as having the most valuable "future technology" in the auto industry including their advanced technology in the Bio3 fuel (algae diesel) field.
They won't enter F1 because they think it is too dumb.

[Oldtony]

Porsche has at last secured a theoretical controling interest in VAG (Volkswagen Audi Group) reaching a holding of 50.67% yesterday.
They purchased the shares when they had dropped back fro the crazy EU1000.00 per share that speculators were paying a few months back to the mid EU200.00 mark which still values VAG higher than any other car company.
They have announced that they want to push on to gain 75% holding which would, under normal EU law allow them total control of the company.
However a special Volks Law which applies to VW only passed the German Parliment some years ago states that a party holding 20% of the shares can veto "strategic" changes.  The State of Lower Saxony holds 20% of VAG shares. Porsche are challenging that legislation in the EU courts and it is anticipated that they will win a "normalisation" of share control conditions.
VAG passed Ford in August to become the 3rd largest motor manufacturer in the world behind Toyota and GM.
And they are not only building them, they are selling them.
Guess it gives substance to the description of Porsche as "A little sports car shop with a huge hedge fund out the back".

[Richarbl]

According to the latest reports this a far from a done deal. Apparently VW are refusing to come to the party because Porches' share price
has plummeted in recent months. I believe VW are unwilling to be controlled by a company that may not be able to support the entire VW Group
if the economic conditions get any worse.
VW currently controls a remarkable number of brands including Audi, Bentley, Bugatti, Lamborghini, Seat, Skoda and is concerned that
Porsche would be less able to raise capital because of it's much lower value as a company.
This deal looked quite feasible a few months ago but these days VW has retained both its corporate value and its reluctance to be controlled by Porsche.

This has become quite an interesting saga, complicated by family history, financial ramifications and fueled by enormous egos. It is a story without a predictable ending, stay tuned. 

[Oldtony]

Guess it gives substance to the description of Porsche as "A little sports car shop with a huge hedge fund out the back".

Looks like how I described Porsche back in January is pretty accurate. What I overlooked was the fact that hedge funds are not exactly stable propositions at present, and it looks as if this is another onr that is over stretched. 
As Rich says the whole plot has turned around and the Peitch pitch looks like taking out the Porsche out of Porsche. Nothing like a bit of family infighting to spice up the financial market.
As it stands now the most likely scenario would seem to be Porsche becoming a division of VAG instead of the other way rpound.
Meanwhile of course the Porsche Audi battle at the Ring probably spiced up the internal competitive juices. The workers on the Porsche factory floor apparently planned to give Pietch a hostile reception last week so he cancelled the visit.

[Everso Biggyballies]

Meanwhile of course the Porsche Audi battle at the Ring probably spiced up the internal competitive juices.

Porsche I am sure would have had a little chortle to themselves when the #100(? one of the 4 anyway) Audi R8 LM failed to finish the first lap of the Nurburgring 24 hours over the weekend race.....

[Richarbl]

This article appeared in the Weekend Australian 23/5, an excellent article by respected English Journalist Roger Boyes.
It perfectly outlines the unfolding saga, unfortunately I could not find a link anywhere so I will take the time to type the article. Hope you enjoy reading it.

VW TURNS THE TABLES ON PORSCHE

It would take a brave man to cross UWE Huck, head of the works council at Porsche and a former European Thai boxing champion.
"Porsche will stay independent" he bellows into a speaker system connected to the three factories that make the sleek sports cars.  
 His anger, and that of the workers, is directed at Ferdinand Piech, Chairman of the board at VW and the grand old man of the German car industry.
Despite being a member of the Porsche dynasty... Piech at 72 years old but still going strong.... seems about to authorise a move that will allow
VW to swallow the sports car maker.

Perhaps that is why he didn't turn up at Porsche board meeting on Monday, a session billed as a high noon showdown between Piech and his
cousin Wolfgang Porsche. Maybe he was worried that the Porsche workers would turn on him, if not with a high kick from the atheletic Huck,
then at least a battery of eggs from a seething shop floor where placards were being brandished with the words, "Ferdinand .K. Piech
you are a liar"     More likely he was playing for time.

After astounding the car world by making huge speculative profits last year, Porsche overstretched it self in a bid to buy VW.
The move initiated by Porsche chief, Wendelin Wiedeking, was based on the illusion that a company fifteen times smaller than
VW could use its financial expertise to shake up the management of the giant Wolfsburg outfit and secure its own future.

Last autumn Porsche outwitted short sellers(and cam close to ruining several hedge funds) by announcing it had raised its stake in
VW voting shares to 42.6 % and optioned another 31.5 %.
It seemed possible that Porsche could capture a 75 % and with it access VW's AUD $19 Billion cash reserves.
Although Porsche sales overseas were tapering off badly, its financial dealings ensured that, on paper, it was flush with
cash: the value of its VW shares rose by a further $ 19 Billion.
Wiedeking won an  industry award as manager of the year and overtook Josef Ackermann, of Deutsche Bank, to become the highest paid
German executive. That was his fifteen minutes of fame. Then the mood curdled. Porsche executives rubbed VW up the wrong way by complaining
about the way it mollycoddled its workers and built inefficiency into the system.
Here was a clash of business cultures between VW, with its its close links to government and Porsche which saw itself
as a competitive fleet of foot exporter and market operator.

Part 2 to follow shortly

[Richarbl]

Part 2  VOLKSWAGON TURNS THE TABLES ON PORSCHE.

In January, Porsche raised its stake in VW to 50.8 % and in doing so tripled its net debt to AUD $20 Billion.
But Wiedeking had miscalculated . First, the credit market is tight and Porsche is plunging deeper and deeper
into debt and struggling to meet its obligations.

Second, Wiedeking had assumed that there would be a repeal of the so called Volkswagen Law  which restricts
individual shareholders to 20 % voting rights however big their stake in the company.
The idea is to give the state of Lower Saxony, which has a 20% stake, the right to veto changes in VW that could move
jobs away from the region, where VW is the most important single employer.

So Wiedeking has landed up with the worst of all possible worlds: a 50 stake that cannot translate into serious
decision-making power and potentially ruinous debt. The dream of getting a key to VW's treasure chest has evaporated.

So Vw has turned the tables: now Porsche needs VW to survive.

Ferdinand Piech has let it be known that Wiedeking would stay in position only as long as he could be useful to VW.
More, there was no way VW could be expected to take over Porsches entire short term debts. It is demanding
Wiedeking cut Porsches debt by at least AUD $10 Billion before it continues negotiations. In addition to this VW
wants to look into its rivals books.

Some of Porsche's options expire in June. What will happen to them? There have been vague hints of a Middle East
investor taking up the slack, but they are regarded as blowing soap bubbles.

If Piech get his way Porsche will become one of VW's ten marques, rather like Audi. Should Wiedeking agree to
that, he will become more than a departmental head. A steep fall and difficult to envisage.

The way ahead now is a family meeting in which Wolfgang Porsche will again meet his cousin Ferdinand Piech.
Wolfgang Porsche will fight preserve maximum independence for the company. Piech, the grandson of Ferdinand Porsche,
who developed not only the fabled sports cars but also the VW Beetle will warn that the Porsche debts could drag
down the market value of VW, seriously damaging its credit rating and put his life's work at risk.

Either the two wings of the dynasty, the POrsches and Pieches, pool their private resources and pay off Porsches debts
or Porsches car business is sold to VW on terms set by Piech.

Both ways wins---- and Wiedeking moves on

[Everso Biggyballies]

Interesting read.  Thanks.

Family rivalries always make these issues more interesting, and unpredictable.

[Oldtony]

Swings and roundabouts!
Porsche today announced placement of a 20% share of the company with the gulf state QATAR's Soveriegn Fund, giving the company a massive capital injection.
This effectively now puts Porsche back in the position of being the dominant and controling shareholder in VAG (VW Audi Group) and puts the battle for control back into play.
The Qatar Soveriegn Fund is the shieks pocket monet by the way.