LUXURYMOTORS: Supercar Survival II.Following a steady attempt by Porsche to secure control of VW, the brand may end up being sold to the German giant, writes DEREK SCALLYin Berlin
FOR THE last three years, Germany has been gripped by a tale of fast cars, outsized egos and a family feud so vicious that it makes the Ewings look like the Waltons.
Now it looks like the Porsche take-over of Volkswagen, a corporate David and Goliath tale on a multi-billion scale, could end with Volkswagen swallowing Porsche. In these uncertain times, it’s not as implausible as it sounds.
When Porsche announced in September 2005 that it was taking a 20 per cent stake in Volkswagen, it was welcomed by people on both sides as a practical, pragmatic step.
The two companies already co-operated in their design and engineering divisions and the move could shield the larger company from foreign predators. Though they denied it at the time, Porsche managers were in fact working to secure full control of VW, betting on the fall of the so-called “Volkswagen Law” that gives the local state government a veto over unfriendly suitors.
When, two years into the poker game, Porsche tipped its hand, VW managers and unions were horrified by a strategic partnership that was starting to look like a forced marriage.
They felt VW managers and workers were seriously under-represented in the new Porsche Holding company, created as an umbrella for VW and Porsche AG, the sports car maker.
But there was little VW could do but watch as the Stuttgarters spent billions buying shares, ending the year with 51 per cent stock and options to raise that stake to the controlling threshold of 75 per cent.
When the financial crisis hit, it left Germany’s car companies struggling. Behind the scenes, Porsche was reeling.
Its loyal customer base of stockbrokers and hedge fund managers were either unemployed or had no bonus for a new car. But Porsche AG said it had enough cash to weather the storm, particularly after earning €6.8 billion in a nifty piece of trading options sleight-of-hand with VW stock last year.
But those options cannot be converted easily into cash and, even if they could, it is not Porsche AG that is buying VW, but Porsche Holding.
This umbrella company has spent €23 billion so far on VW stock, including loans worth €9 billion. Finishing the job will take at least another €13 billion at the current stock price. But it is having problems finding banks willing to provide a secure line of credit.
Earlier this month, banks agreed to refinance loans to the tune of €10 billion rather than the €12 billion sought -- and only for six months, rather than a year. That has made it hard to stick to the original plan whereby, takeover completed, Porsche would gain access to VW’s sizeable cash reserves of €8 billion to pay back the banks.
As the takeover drags on, the indebted Porsche Holding company urgently needs cash.
The quickest solution could be to sell Porsche AG, the sports car maker, to Volkswagen, and then take back control of both companies post-merger through Porsche Holding.
“It’s the most logical end-game,” according to analysts at Credit Suisse bank.
But will it work? At last week’s VW AGM, the chief financial officer said that “no concrete decision had been made” on taking over Porsche – that’s not a no.
Already the prediction is the take-over, as a result of this unplanned detour, could end badly for Porsche chief executive Wendelin Wiedeking.
He rescued Porsche from the verge of ruin in the 1990s, turning it into the world’s most luxurious and profitable car company. But the Porsche family, whole owners of the company, are anxious not to follow auto parts company Schaeffler, facing ruing after its take-over of Continental.
Rumours are circulating – denied by Porsche management – that Wiedeking could be for the chop, alongside his chief financial officer, Holger Härter. That would be sweet victory for VW chairman Ferdinand Piech.
Himself one of the Porsche clan, Piech was the first to dream of a VW-Porsche merger, but has clashed with his Stuttgart cousins over Wiedeking’s strategy.
As the final showdown looms in Germany’s most dramatic corporate take-over battle, no one knows how it will end.
Who knew a Volkswagen could give a Porsche such a run for its money?