Money Matters, Simplified.
The circuitous road to Porsche, Volkswagen deal
by Jamie Anderson - July 20, 2009 - comments
The board meetings of Volkswagen and Porsche on Thursday are likely to rule on the rancorous merger battle and a decision on the merger is expected
Germany, July 20: Porsche SE (Xetra: PAH3, FWB: PAH3) and Volkswagen (FWB: VOW), the two German automobile manufacturers have been seeking to build an integrated car company since May, but in vain.
There has been more than one reason for the deal that has not fructified till date. Prominent amongst those are Porsche’s enormous 10 billion-euro debt, a colossal tax bill for the seller and a ferocious power struggle behind the scenes between the Porsche and Piech families.
Another impediment in the deal is the question mark over the success of merging mass-market and luxury brands in the automobile industry. Till date, such alliances have fared pretty poorly.
Volkswagen to acquire Porsche
Sources familiar with the matter state that Volkswagen intends to take over all of Porsche AG, the sports-car making business of Porsche SE. Europe's largest car-maker, Volkswagen intends to gallop up the beleaguered Porsche in a series of two transactions.
Initially, the Wolfsburg, Germany based Volkswagen would acquire fifty percent of the shares in the Stuttgart, Baden-Württemberg, Germany based Porsche. It will then purchase the balance shares in a second step.
If the deal sees the light of the day, Porsche will become the 10th brand in the stable of Volkswagen. Porsche would benefit from the technology that it can ill afford to build up itself.
CEO’s clout may not work
Meanwhile, Porsche’s Chief Executive Wendelin Wiedeking's intends to mobilize about 5 billion euros by selling a fourth of Porsche to Qatar Investment Agency.
He said of his role, “I'm a happy chief executive and feel absolutely well in this role." He rubbished rumors that he could voluntarily step down as Porsche CEO.
“Why would one resign if one has a proper contract," he added.
All said and done, Wiedeking is merely a hired professional. His wings may simply be clipped as Porsche and VW get ready to become one.
The fate of Porsche is likely to be decided next Thursday at the Porsche and VW board meetings. In addition to the business logic, emotions are likely to play a pivot role in the decision.