By Chris Haak
My, how the mighty have [nearly] fallen. The self-promoting “most profitable automobile company in the world” that owns a controlling interest in Volkswagen AG and had to only recently change its plans for world German auto industry domination from a takeover of VW to just a merger, apparently had an extremely close call with bankruptcy in March 2009. German magazine Spiegel reported on May 25 that from March 22 through March 24, the company had to scramble so fervently to shore up its finances that German Chancellor Angela Merkel had to intervene on the company’s behalf.
According to Spiegel, the crisis in March was triggered by the impending expiraton of a €10 billion loan at midnight on the 24th. As Porsche sought to get an extension of the loan’s terms, it met with unexpected resistance on the part of the financial community. After several days of meetings, some banks agreed to extend additional credit to Porsche, while Volkswagen itself gave Porsche €700 million in bridge financing. Even those concessions weren’t all that was needed, so Porsche CFO Holger Härter went through his Rolodex until 11:00 p.m. on March 24th – just one hour before the deadline – until he had secured the necessary funding.
So how did Porsche get itself into this trouble? The company over-leveraged itself so it could afford to purchase 51% of the much-larger Volkswagen, only to find that easy money was no longer easy – or in some cases possible at all – to get. The fact that Porsche’s CEO wasn’t aware of the difficulty in getting additional financing until the week before the March 24 deadline shows a management failure and a lack of awareness of the external situation in the auto and financial industries. Anybody with a Wall Street Journal subscription knows what has been happening in the global credit markets for the past nine months (past seven months as of late March when Porsche was experiencing its brush with death).
The biggest pill for Porsche to swallow in this situation is that it had to suffer the indignity of accepting assistance from VW, and if that’s not enough, will have to agree to a merger on VW’s terms within less than a month, or Porsche will again be in peril. Porsche CEO Wendelin Wiedeking no longer appears to be calling the shots in the relationship with VW, and may in fact find himself out of a job if Volkswagen takes control of Porsche.
Wiedeking, who has said in the past that government bailouts and a luxury automaker do not go hand-in-hand, apparently will take money for Porsche from wherever he can find it. Porsche sought money from Germany’s state-owned development bank, KfW (its application was rejected). Meanwhile, Günther Oettinger, the governor of Baden-Württemberg where Porsche is based, has mentioned the possibility of Baden-Württemberg granting loan guarantees. So not only has Wiedeking had to approach the government hat-in-hand to accept loan guarantees and use political pressure from Chancellor Merkel to secure financing, but with almost no bank willing to lend Porsche additional money without loan guarantees and having to accept money from his former acquisition target, he will continue to find himself in a tough spot until Porsche’s management board – or VW’s, as the case may be – pushes him to the unemployment line.
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