Porsche to Bid for Volkswagen
24 March 2007
Porsche AG will increase its stake in Volkswagen from the 27.3% up to 31%, and thus make a mandatory offer for the company. The company will offer €100.92 per ordinary share. Volkswagen shares closed at €117.70 on Friday, valuing the company at €42.7 billion (US$56.8 billion).
Once this mandatory offer has been implemented, any further increases by Porsche of its stake in VW will not trigger a renewed obligation to make another offer to the remaining shareholders.
Financing of the mandatory offer has been ensured via a credit facility arranged by ABN AMRO Bank N.V, Barclays Capital, Merrill Lynch International, UBS Limited and Commerzbank AG.
Porsche has traditionally had a close relationship with Volkswagen. The original Beetle was based on a development by the founder of Porsche. The two companies had a number of joint projects, such as the 914, the 924 and the 944, and also a joint sales company in the period between 1969 and 1974.
Volkswagen now builds the Porsche Cayenne, Volkswagen Touareg and Audi Q7 SUVs at the same plant. The two companies have further joint projects: a hybrid drivetrain which is to come on the market by 2010, a joint electronics platform, a cooperation with regard to the building of the body shell for the new four-door Gran Turismo Panamera and further projects aimed at optimizing fuel consumption and at safety technology.
Part of the background to the increased stake and acquisition offer is Germany’s VW Act, which caps shareholders’ voting rights at 20% regardless of the size of the stake. Porsche, which supports abolishing the law, enjoyed a victory in February when an opinion by the Advocate General of the European Court of Justice recommended amended or repealing the law due to its incompatibility with European law.
Porsche proposes implementing a holding structure to separate operational business activities; thus the operational business of Porsche AG would become a wholly-owned subsidiary of the larger holding company.
The Managing Board of Porsche has, in this context, made it clear: Porsche will remain Porsche.
The Managing Board of the sports car manufacturer regards the proposed increase of the stake in VW group as a logical step to enable it to meet the global challenges in the highly competitive automobile market even better. It is firmly convinced that the technical and strategic collaboration between Porsche and Volkswagen produces benefits for both partners.
This particularly applies in light of the pressure to rationalize and consolidate in the global automobile industry as a result of the increasing international competition, especially from the up-and-coming automobile nations Japan, China (now the second largest automobile producer in the world), India, Malaysia, Russia and others.
—Statement from Porsche AG
For reference: the VW law mentioned in the article ensures that no single shareholder can exercise more votes that the state of Lower Saxony, which owns 20.75%. By raising its stake above 30% prior to the EU court's anticipated scrapping of the law on anti-competitive grounds, Porsche can get away with making a lowball takeover offer to all shareholders. German law requires that an offer be made once a shareholder cross the 30% mark.
In the past, the law pretty much ensured Lower Saxony ran the show at shareholder meetings. Unsurprisingly, it was more concerned with safeguarding jobs (= votes) than with corporate profits. If the law is overturned, expect Porsche to throw its weight around.
Ferdinand Piech, scion of the Porsche clan and a former VW CEO, is currently Chairman of the Board at both VW and Porsche. He has maintained cordial relations with the powerful German unions in the past but has also stated that VW has been substantially overstaffed for decades (an open secret, but still). As long as the law is in place, Lower Saxony and the unions will block any overly aggressive moves aimed at shedding excess capacity. This is widely believed to have been one reason Mr. Bernhard was de facto ousted.
Porsche may now also be looking for a way to meet the upcoming fleet average limit of 130 gCO2/km. It is not yet clear if these averages will be computed per brand, per corporation or across the sum total of all cars sold in the EU (i.e. leaving it up to the manufacturers to sort out any penalties among themselves).
Posted by: Rafael Seidl | 24 March 2007 at 02:04 PM
If you told me someone would build performance SUVs, I would have laughed in your face. I will never understand products like the Cayenne, Touareg and Audi Q7, and never mind The Hummer! Neither make practical sense. I guess it must be because I don't have the bucks to waste on such sins. But there's plenty of ugly Americans that buy them for bragging rights. If they depend on people like me buying them, they would surely go broke! My idea of a new car purchase is a ten year old Volvo.
Posted by: Lad | 24 March 2007 at 09:58 PM
If you told me someone would build performance SUVs, I would have laughed in your face. I will never understand products like the Cayenne, Touareg and Audi Q7, and never mind The Hummer! Neither make practical sense. I guess it must be because I don't have the bucks to waste on such sins. But there's plenty of ugly Americans that buy them for bragging rights. If they depend on people like me buying them, they would surely go broke! My idea of a new car purchase is a ten year old Volvo.
Posted by: Lad | 24 March 2007 at 09:59 PM
Porsche is buying VW. Amazing how simple is formula for success: good layout – flat six RWD midengine, and high quality. Same with front engine straight six and RWD for BMW.
Posted by: Andrey | 25 March 2007 at 01:51 AM
Ugly Americans eh.I'll remember that when Eurostan is imposed.
Posted by: Earl | 25 March 2007 at 05:43 AM
Im with you there on that one Lad !
Posted by: andrichrose | 25 March 2007 at 12:26 PM
It's funny that people from the outside will judge without full knowledge of the details. The Hummer had huge tax breaks, that's why it was embraced so fast. I neither recommend for myself nor others the purchase of such a monster, but it you have to shelter your earnings, that was the motivation.
Posted by: Richard | 26 March 2007 at 10:56 AM