One’s weal is the other’s woe

Chil­dren mustn’t med­dle with the fu­ture

Finweek English Edition - - Openers - VIC DE KLERK vicd@fin­week.co.za

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.

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