Reversal of Fortunes: Volkswagen Mulls Porsche Takeover

Volkswagen is reported to be pondering a takeover of the Porsche sports car business. Parent company Porsche Automobil Holding is struggling to service its debts and CEO Wendelin Wiedeking is reported to be losing the backing of the Pich and Porsche families.

The Porsche-Volkswagen corporate saga continues with reports that Volkwagen is considering a bid for Porsche's automotive business, something that could completely change the balance of power between the two companies. Parent company Porsche Automobil Holding SE launched an audacious takeover of the much larger VW over three years ago, and it now owns just over 50 percent of the company. However, financial difficulties at Porsche, including massive debt, seem to have forced a rethink of the relationship between the two German carmakers.

The power struggle between VW and Porsche continues.
DDP

The power struggle between VW and Porsche continues.

The Financial Times Deutschland reported on Thursday that several people close to VW management said that the company was weighing the option of buying the sports car manufacturer Porsche AG. Such a move would bring relief to the highly indebted Porsche Automobil Holding, which announced recently that it had a net debt of €9 billion ($12 billion.)

The company is reported to be finding it increasingly difficult to service the huge loans it incurred when purchasing VW shares. According to Germany's Manager Magazin, which belongs to the SPIEGEL Group, it is looking around for new sources of income. One option could be a capital increase, while the magazine also reported on Wednesday that Porsche was in talks with potential investors in the Arab world.

Graphic: Porsche's structure
DER SPIEGEL

Graphic: Porsche's structure

The mooted plan to have Volkswagen buy its automotive business would be another way of providing much needed cash. However, any such plan would have to be approved by the Porsche and Pich families, who between them jointly own Porsche Automobil Holding, the parent company that owns both Porsche AG and the 50.76 percent stake in VW. The company had hoped to increase its stake in Volkswagen to 75 percent this year.

Porsche's attempts to take complete control of VW have been thwarted by the so-called "Volkswagen law," which restricts individual shareholders to a 20-percent portion of voting rights, regardless of how much they own. This has effectively allowed the state of Lower Saxony, which owns 20 percent of VW's shares, to veto any important decisions at the company. Porsche has been banking on the European Union abolishing the law, something that would allow Porsche to sign a control and profit transfer agreement with the VW Group.

Wiedeking Under Threat?

According to the Financial Times Deutschland, the governor of Lower Saxony, Christian Wulff, is "playing a constructive role" in the possible plans for a VW takeover of Porsche AG.

If that deal were to go ahead, it would make the Volkswagen supervisory board chairman, Ferdinand Pich, one of the most powerful men in the automobile industry. He is currently also a member of the board at Porsche Automobil Holding but up until now he has always played second fiddle to his cousin Wolfgang Porsche.

According to the Frankfurter Allgemeine Zeitung, the Porsche CEO Wendelin Wiedeking is losing the backing of the Pich and Porsche families, who are said to be increasingly worried about the future of the company. The paper reports on Thursday that the families are fearful that by taking on a company 15 times the size of Porsche, it may have overstretched itself. On Tuesday the Munich newspaper Abendzeitung reported that Wiedeking could even be facing the chop.

Meanwhile on Thursday Volkswagen CEO Martin Winterkorn said that the company wanted to work with Porsche to dominate the automobile industry. "Together we have the means to build the powerhouse of the international automobile industry," he told the VW shareholders meeting in Hamburg. He said the alliance with Porsche had enormous potential, both technically and economically. "I am certain that we will be able to drive our partnership forward in 2009, a difficult year for the auto sector."

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