VW sees Porsche buyout clearing path to global leadership

WOLFSBURG/FRANKFURT, Germany Thu Jul 5, 2012 4:19pm BST

1 of 2. Martin Winterkorn, CEO of German carmaker Volkswagen (R) and CEO of Porsche, Matthias Mueller (L) laugh before a news conference in Wolfsburg, July 5, 2012.

Credit: Reuters/Fabian Bimmer

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WOLFSBURG/FRANKFURT, Germany (Reuters) - Volkswagen (VOWG_p.DE) moved closer to its aim of becoming the world's top car maker by buying up the remaining half of Porsche in a deal that ends a protracted takeover struggle that sparked family feuds and investor lawsuits.

The deal will enable VW to escape a tax bill of 1.5 billion euros. It also allows VW to speed up Porsche's integration into a multi-brand empire that aims to sell 10 million vehicles a year to become the world's no. 1 by 2018.

"We're wrapping up one of the most significant projects in the automotive world," VW Chief Executive Martin Winterkorn told reporters at the group's Wolfsburg headquarters.

"Together we are more capable than ever of becoming the best auto company on the planet," he said, adding that VW was poised to invest "massively" in new shared technologies and production.

Joint projects already underway include Porsche's next model, the Macan compact SUV, due for a 2014 launch. VW also plans to begin assembling some Porsche models in its own plants.

VW, already a major player in emerging markets such as China, Russia and Latin America, will also need a bigger U.S. presence if it is to win and maintain the global crown.

Under CEO Winterkorn, VW last year opened a factory in Chattanooga, Tennessee, and is adding an Audi plant in Mexico.

Shares in Europe's biggest automaker rose strongly on Thursday after it agreed to buy the remaining half of the sports-car maker for 4.46 billon euros ($5.9 billion), exercising options held since the purchase of its initial stake in 2009.

"VW is getting a good deal," said London-based Morgan Stanley analyst Stuart Pearson, predicting in a note to investors that its completion would lift VW earnings by 6 percent next year. "Porsche is the world's best premium car story."

With Porsche's global sales running 20 percent above their previous record, the main challenge facing the maker of the iconic 911 coupe is to increase production capacity, Pearson added, and integration with VW may help.

After giving up some of their earlier gains, VW shares were 4.3 percent higher at 1405 GMT, while Porsche SE (PSHG_p.DE) holding company stock was down 2.3 percent. The deal is expected to take effect by August 1, VW said.

BUYOUT PRICE

The buyout price - 3.88 billion euros set by the original options, plus a share of expected dividends and other gains from the tie-up - takes VW's total outlay to about 8.4 billion euros for the entire business, excluding debt.

Since 2009, when the basic purchase price was fixed, Porsche's sales have soared and its debt repayments have fallen with interest rates.

VW now values Porsche at "clearly more than 20 billion euros" and will write up the business in its accounts, Chief Financial Officer Hans Dieter Poetsch said on Thursday, pointing to the brand's 18 percent profit margin.

The companies had for months explored ways to avoid a tax bill of up to 1.5 billion euros that would have been incurred if the cash deal had gone through before August 2014.

Instead, by including a single share in the payment to Porsche SE, VW lawyers determined the transaction could go through tax-free under German law, leaving transaction levies of a little more than 100 million euros to pay.

VW's tax move has drawn political scrutiny, and the announcement came less than two days before Germany's Bundesrat, the upper house of parliament, begins debating the annual tax bill amid growing calls for amendments to close the loophole.

"If global players can save billions in taxes with such tricks, taxpayers will feel someone's kidding them," former economy minister Rainer Bruederle said on Thursday.

The VW group - including brands as diverse as Skoda, Audi and Lamborghini - is currently ranked global no.3 after Toyota 7803.T and General Motors (GM.N), according to first-quarter deliveries data compiled by Ernst & Young.

Full VW-Porsche integration is expected to generate annual savings of 700 million euros and erase Porsche's 2 billion euro debt. It will boost VW's full-year earnings by more than 9 billion euros and reduce net liquidity by 7 billion, the company has said.

The companies had first agreed a full merger in 2009, after the sports car maker racked up more than 10 billion euros of debt in a failed attempt to take over VW, pitting Porsche family members against the related Piech clan.

VW dropped the merger plan last September in response to U.S. and German investor lawsuits accusing Porsche of secretly piling up VW shares for the acrimonious bid, causing short-sellers to lose billions.

By purchasing the Porsche manufacturing business instead - a fall-back option included in the original tie-up agreement - VW sidesteps the issue, leaving ongoing litigation risk with the Porsche SE holding, which it is not acquiring.

($1 = 0.7994 euros)

(Writing by Laurence Frost; Editing by Will Waterman and Giles Elgood)

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Comments (2)
Raymond.Vermont wrote:
Porsche-wagons…

Is Porsche really a prestige marque anymore?

Jul 05, 2012 4:53pm BST  --  Report as abuse
JenkinsComp wrote:
Ha. If VW think they can carry on selling massively overpriced rubbish then good luck to them. When the EU collapses their buyers will not be paying the prices they do now! A Golf GTI costs over 30k in Spain but the exact same new car in Germany is 27k. All their other models are still similarly overpriced outside Germany, despite VW being fined hundreds of millions of Euros for price fixing, on several occasions in the past 10-15 years. And now they’re ripping off their own taxpayers for 1.5bn by a deliberate tax avoidance takeover sham!!!

Capturing the most global sales through acquisition of other brands certainly does not equal the best car company, especially given the boring/tasteless brands VW own, otherwise GM would have been the best car company over the last century, which they were clearly not. And mass producing white goods doesn’t make you the best either.

Porsche never were a prestige marque, only in the minds of deluded quarterwits. Whenever I see someone driving a 911, I just think, “oh look, another person fooled into wearing the emporers new clothes”. 911s are and always have been a terrible handling, overpriced car, with 3/4 of a proper engine. Porsches are more common in London than a Ford, and familiarity breeds contempt, in case you hadn’t noticed!

Jul 06, 2012 8:13am BST  --  Report as abuse
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