VW and Porsche Will Merge Soon, Say Reports

Sale of controlling stake in Porsche looks imminent

By Brendan Moore

07.17.2009

vw-logoReports out of Germany suggest that an agreement to cede control of Porsche to VW will be reached by next week.

If you are new to this Teutonic soap opera, Porsche originally tried to acquire VW a short time ago, running up staggering debt in their failed attempt.

How much debt?

Porsche has more than 9 billion euros ($12.7 billion) in debt, which got them a 51% stake in VW, and, options for 20 percent of the Wolfsburg-based VW, Europe’s largest auto manufacturer.

The attempt, however, unraveled quickly, when the debt load of Porsche came to light, some of the lenders got nervous, and the scenario of the minnow swallowing the whale was put to rest (VW produces more cars in a week than Porsche produces in a year).

Now Porsche is the one that is going to be acquired by VW Group as a result of its weakened state.

But, of course, the devil is in the details. All of that debt means some very creative machinations have been developed in order to satisfy all the parties concerned and there has been considerable wrangling over just what plan is the most pleasing to all of the stakeholders. Add in the generally depressed state of the auto industry currently, and it is easy to see how different valuations of the company and the business it might be capable of could lead to severe disagreements.

And, there is no discounting the special type of tension that exists when family is involved. The Porsche and the Piech families, which control all of the voting shares of Porsche, are also related through both business and marriage. Ferdinand Piech is Ferdinand Porsche’s grandson, and also in charge of VW-Audi, and, also has an ownership stake in Porsche AG. Porsche family members also have an ownership stake in VW-Audi.

Dr. Wendelin Wiedeking, the current CEO of Porsche, is the person that all agree brought Porsche back from the brink of insolvency in the early 90’s, and is also the person that pushed for Porsche’s control of VW.

Now that the proposed takeover has collapsed, he professes to be happy with the outcome, but his situation is quite tenuous. There is chatter in Germany that he will be offered approximately 100 million euros to just go away as his continued presence would be an always-present irritant to future harmony between Porsche and VW.

The sanguine Wiedeking ignores the talk and presents only a contented face to the press. While at Audi’s 100th Anniversary Celebration in Ingolstadt, he told reporters who asked about Porsche’s future, “I’m the chief executive officer. I bear responsibility for this company and I’m feeling happy as a cat in that role.”

It is expected that everything will be resolved next week, one way or another. The run-up is bound to continue to be interesting, and so will the conclusion.

COPYRIGHT Autosavant – All Rights Reserved

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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4 Comments

  1. Christmas dinner shoold be fun.

  2. Wiedeking miscalculated badly on this and you can bet he’s going to lose his job. The bad part is that they’re going to give him a big severance package for pushing the company into a huge hole. It’s crazy to reward failure.

  3. Higher performance Volkswagens or a more affordable Porsche?

    Probably neither, but it’s nice to kick the ball around a little with speculation.

    BTW, nice wrap-up in the post. I actually understood what was going on and why.

  4. I hope this does not over extend Volkswagen AG’s finances now.

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