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Volkswagen and Porsche moving up full integration to August

Volkswagen Aktiengesellschaft and Porsche Automobil Holding SE (Porsche SE) are accelerating the creation of an integrated automotive group through the contribution in full of Porsche’s automotive business to the Volkswagen Group, with the move expected to take effect as of 1 August 2012. The move will allow the integrated automotive group consisting of Volkswagen and Porsche to become reality some two years earlier than would have been economically feasible under the put/call options provided for in the Comprehensive Agreement signed in August 2009.

Porsche SE will receive around €4.46 billion (US$5.6 billion) and one Volkswagen ordinary share as consideration for contributing the 50.1% of Porsche AG not yet owned by Volkswagen.

The unique Porsche brand will now become an integral part of the Volkswagen Group. That is good for Volkswagen, good for Porsche and good for Germany as an industrial location. Combining their operating business will make Volkswagen and Porsche even stronger—both financially and strategically – going forward. We can now cooperate even more closely and jointly leverage new growth opportunities in the high-margin premium segment through targeted investments in pioneering products and technologies. This will benefit our customers, our employees and our shareholders.

—Prof. Dr. Martin Winterkorn, Chairman of the Board of Management of Volkswagen AG

The two companies announced last September that it would not be possible to implement the merger of Volkswagen AG and Porsche SE provided for in the Comprehensive Agreement signed in 2009 by the end of 2011, as had been agreed. In addition, the tax treatment of the put/call options provided for in the Comprehensive Agreement does not allow the automotive business to be integrated on economically feasible terms before the second half of 2014. The two companies have therefore been exploring alternative ways of achieving their common goal of an integrated automotive group that can be implemented by all parties at an earlier point in time.

The accelerated integration model now agreed upon is based on the Umwandlungssteuergesetz (Reorganization Tax Act) and the Umwandlungssteuererlass (Taxation of Reorganizations Circular) which was published at the end of 2011, as well as advance rulings from the relevant tax authorities, and can be implemented on economically feasible terms.

Under the structure developed jointly by the two companies, Porsche SE will contribute its operations as a holding company, including its 50.1% Porsche stake, to Volkswagen Aktiengesellschaft, which already holds indirectly 49.9% of Porsche AG. Once the transaction has closed, Volkswagen will hold 100% of the shares of Porsche AG via an intermediate holding company. In return, Porsche SE will receive a consideration totaling around €4.46 billion plus one ordinary share of Volkswagen. The cash consideration is based on the equity value of €3.88 billion for the remaining shares of Porsche AG set out in the Comprehensive Agreement, plus a number of adjustment items.

Among other things, Porsche SE will be remunerated for dividend payments from its indirect stake in Porsche AG that it would have received as well as for half of the present value of the net synergies realizable as a result of the accelerated integration, which amount to a total of approximately €320 million.

The consolidation of Porsche’s highly profitable automotive business will have a positive impact on Volkswagen’s consolidated profit. With regard to operating profit for the current fiscal year, the initial high depreciation and amortization charges resulting from the purchase price allocation are expected to largely offset the earnings contribution. As a consequence of the consolidation of Porsche’s automotive business, Volkswagen must remeasure its existing shares in Porsche Zwischenholding GmbH at their fair value. For the current year, based on the measurement parameters as of 31 March 2012, this will result in a clearly positive non-cash effect of more than €9 billion (US$11.3 billion) in the Volkswagen Group’s financial result. Net liquidity in the Automotive Division is expected to decline by a total of approximately €7 billion (US$8.8 billion). Apart from the cash consideration of around €4.46 billion, the initial consolidation of Porsche AG’s negative net liquidity—expected to be around minus €2.5 billion (US$3.1 billion)—will impact liquidity at the Volkswagen Group.


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