Porsche bags VW (UPDATED)

Newswheel staff :: 26 September 2005 :: Filed under Porsche, Volkswagen, Europe & UK, US

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Sports car minnow takes big stake in lumbering leviathan

After the rumours, comes the truth. Following unusual trading activity in VW shares, stock market tittle-tatlers had been leaping about trying to work out what was going on. And they landed on Wall Street raider Kirk Kerkorian. Sorry chaps, but it was Porsche all along.

Confirmation of Porche’s purchase of a large minority stake in VW came yesterday, courtesy of high brow, hard core German weekly, Der Spiegel. For now, Porsche has acquired 13.1 per cent, but head honcho Wendelin Wiedeking confirmed the company’s intention to ramp that up to 20 per cent. That would make Porsche the proud owner of the largest single stake in VW (the government of the German state of Lower Saxony owns 18.2 per cent). Going the whole 20 per cent hog would also take the total cost of the deal to around $3 billion (at VW’s existing share price). That’s a figure many suspect cash-rich Porsche can largely, perhaps entirely, cover without resorting to any financial jiggery pokery.

Wag the dog
If that’s the short version of events, what’s the longer tale that’s wagging this shaggy dog story? Well, Wendelin Wiedeking has been quoted as follows (thanks to German Car Blog for the translation): "With this engagement we want to ensure long-term the business relations with VW and also a significant plan for our future."

Another, blunter, way of putting it goes thusly: the fate of Porsche is simply too deeply entwined with VW for Wiedeking and the Porsche board to sit back and allow the doofuses over at VW to run the lumbering German leviathan into the ground. How so? Well, along with the Porsche Cayenne / VW Toureg joint SUV venture, VW is major Porsche supplier (around 30 per cent by value).

Making a move
As for the timing of the move, VW’s rather feeble market capitalisation was surely a factor (as well as an explanation for how a minnow like Porsche is acquiring part of a big beast such as VW, rather than the other way round). Presently, VW’s share price values the company well below the sum total of its assets, making it rather ripe for takeover, hostile or otherwise. If Porsche hadn’t made the move, goes the argument, someone unsympathetic to Porsche’s interests probably would have. Therefore, with Lower Saxony’s stake in VW in mind, if Porsche goes through with its 20 per cent acquisition plans, the chances of anyone else bagging just over 50 per cent, and with it a controlling stake in VW, will be slim to none.

What’s more, assuming just a little of Porsche’s bombastic business sense rubs off on blundering old VW, it might just turn out a killer investment, to boot.

A place in the history books
Finally, it’s a chance for Wendelin Wiedeking, himself, to carve out his own little corner in the illustrious history of German car manufacturing. Despite Porsche’s rampant success in recent years, the existence of the Cayenne and the too-close-for-comfort relationship between the Boxster and 911 product lines have left room for doubt over his legacy. One thing is for sure, however. If this deal turns out smelling of roses, Wiedeking will be the most fragrant flower of all.

UPDATE:
It seems the markets aren’t with Herr Wiedeking on this one - Porsche’s share price dropped by over 11 per cent on Monday as news of the VW acquisition was digested by carnivorous equity traders around the world.

Linkage:
Der Spiegel (a chance to brush up on your German)
The German Car Blog