One’s weal is the other’s woe
Children mustn’t meddle with the future
IT’S ALMOST TOO incredible to be believed. Porsche, one of the world’s most profitable motor manufacturers, is on the verge of bankruptcy. Not because there’s anything wrong with its cars or its business but because it’s taken on too much debt to buy a 51% interest in Volkswagen. Porsche urgently needs €1,75bn to pay interest on the debt it’s already acquired to buy Volkswagen shares. VW has plenty of cash but can’t or won’t lend any of it to Porsche.
Now Wolfgang Porsche, chairman of Porsche and grandson of the legendary Ferdinand – designer of the original Beetle and builder of the popular Porsche 911 – has gone cap in hand to the German state bank KfW to ask for something similar to the donation – er, I mean loan – former President George W Bush gave to General Motors last year.
Not far away, VW chairman Ferdinand Piëch is chuckling over Wolfgang’s predicament. Yes, you’re right: Ferdinand Piëch is also a grandson of old Dr Ferdinand Porsche. But the Piëch and Porsche families have long been at loggerheads.
Last year, Wolfgang Porsche went even further and acquired call options to buy a further 20% of VW shares, apparently at a take-up price of €108. Volkswagen’s shares are currently trading at €240 and the options are worth a lot. But in order to take them up, Porsche chairman Wolfgang needs billions – and he can’t raise the cash anywhere.
The answer, of course, is to look to the rich East.
But there are a few small problems. The first is that Volkswagen law states anyone or any institution that owns more than 20% of VW’s shares has a veto right. Lower Saxony, the state in which Volkswagen’s main operations are established, very wisely has a 21% interest in VW. Even if Wolfgang and any friends of his do succeed in their aim to obtain a 75% interest in Volkswagen, VW’s home state will in any case veto all important decisions.
The second minor problem for Wolfgang’s plans is that the Piëch family, under the leadership of Ferdinand, has a larger interest in Porsche than the Porsche family has. The biggest single shareholder in Porsche is Ferdinand Porsche, Wolfgang’s older brother, with 13,6%. And he seems to have more confidence in Ferdinand Piëch, with his direct interest of 12,8%, than his brother Wolfgang.
The two grandsons, both in their seventies, at the head of old Professor Porsche’s legacy to the German motor industry will come to their senses in due course, analysts of both popular shares predict. Porsche’s share price has been falling for the past 12 months because investors are aware of its debt problem. VW’s share price is far too high; it’s being kept artificially high by the outstanding options that Porsche has to acquire a further approximately 20% of the shares. When it became known last year that Porsche held those options, VW’s share price fleetingly shot up and, in terms of market capitalisation, VW was the biggest company in the world.
Analysts forecast that VW and Porsche will amalgamate rather than allow rich oil sheiks to get a foot in the door or Porsche being forced to follow the route of insolvency, like GM.
VW, whose turnover is currently in any case 15 times higher than Porsche’s, will be the winner. The popular Porsche 911 will, like England’s Bentley, become one of the many models offered by VW.
The tale will unfold before the end of the month when Porsche’s options on more Volkswagen shares must be taken up or rolled over. For either of those steps, Porsche needs money. Lots of it.