Corporate Finance : Porsche Pursuing Vw In Low Gear


In the surreal world of corporate takeovers in Germany, pricey sports car maker Porsche has launched a below-market-value offer for peoples car maker Volkswagena bid that it hopes will never cross the finish line.

After exercising an option to take an additional 3.6% interest in VW, increasing its stake above 30%, Porsche made an offer for the entire company, as required by German law. It made the minimum bid legally allowed, hoping that not many VW investors would actually sell their shares in Europes largest automobile manufacturer.

Stuttgart-based Porsches mandatory tender offer to acquire the remaining 69% interest in VW valued the Wolfsburg-based company at about $37 billion. Including debt, Thomson Financial ascribed a rank value to the transaction of about $95.5 billion.

Porsches initial decision to increase its stake in VW by 3.6% was designed to keep the company in German hands. Along with a 20.3% interest held by the German state of Lower Saxony, Porsches 30.9% holding would make it impossible for a foreign buyer to wrest control of VW.

Porsche released a statement saying it was seeking to increase its VW holdings in response to expectations that European Union judges would force the German government to repeal the so-called Volkswagen law. This law, which dates from 1960 when VW was privatized, protects the company from hostile takeovers by preventing any other shareholder from acquiring more than 20% of the voting rights. The European Commission claims that this is in violation of EC treaty rules on the free movement of capital.

German law requires that the takeover offer only be made once and does not require that it succeed, Porsche says. The company is eager to protect the cachet of its sports car brand and does not want to become too closely associated with VW, which wholesales motor vehicles and parts and is best known as the manufacturer of the Beetle.

Volkswagen chairman Ferdinand Pich, whose family controls Porsche, is a grandson of Ferdinand Porsche, who designed the original Beetle. Meanwhile, Volkswagen is Porsches largest supplier, and the two companies make sport utility vehicles at VWs factory in Bratislava, Slovakia. VW is the largest shareholder in Munich-based truck maker MAN, which is expected to enter friendly merger talks with Sweden-based Scania later this year.

A failed bid for the entire Volkswagen Group would enable Porsche to increase its stake in VW in the future without having to launch a mandatory takeover offer, or to inform regulators until its holding exceeds 50% of the shares, giving it increased flexibility to accumulate shares.

Porsche is firmly convinced that a closer bond with VW through an increase of the stake to more than 30% of the Volkswagen ordinary shares will produce benefits for both partners without diluting or indeed endangering the identity of Porsche, the sports car maker said in a statement. Porsche says such alliances will be common in the future as global competition forces the industry to consolidate.

The announcement of a takeover bid followed months of anticipation of an offer that drove VWs stock price up more than 33% this year to new record highs. The share price fell about 6% once the legal minimum bid was forthcoming. Merrill Lynch advised Porsche on its tender offer.

For its part, the state of Lower Saxony says it will remain invested in VW. Premier Christian Wulff says it might even increase its stake to around 25% in the future.

Gordon Platt