agdamis

This does not look like good news from my perspective

Bloomberg Story

Porsche Raises Volkswagen Stake, to Make Takeover Bid (Update4)
2007-03-26 04:38 (New York)


By Chad Thomas and Jeremy van Loon
March 26 (Bloomberg) -- Porsche AG, the world's most
profitable carmaker, boosted its stake in Volkswagen AG to 30.9
percent to defend Europe's largest carmaker against hedge funds,
triggering a legal requirement for a takeover bid.
Porsche, based in Stuttgart, Germany, paid 100.92 euros a
share for the added 3.6 percent stake, Porsche spokesman Frank
Gaube said today. The carmaker is offering the same amount, 14
percent less than the March 23 close in Frankfurt trading that
valued the company at 42.7 billion euros ($56.7 billion), for the
rest of carmaker, Porsche said March 24.
Volkswagen Chairman Ferdinand Piech, whose family controls
Porsche, has steadily increased his influence since Porsche first
bought a stake a year and a half ago, installing Porsche executives
on the Volkswagen board, forcing out the Volkswagen chief executive
officer and winning another term as chairman. A bid now will help
block any rival offer as a German law that prevents a Volkswagen
takeover is invalidated by a European court.
``Once again, a cunning move from Mr. Piech,'' said Juergen
Meyer, who manages the equivalent of 1.5 billion euros at SEB Asset
Management in Frankfurt and holds Volkswagen shares. ``If Porsche
had bid, say 130 euros, for Volkswagen, every hedge fund would have
jumped in and driven the price even further upward. Instead they
are going the much smarter way, making this low offer and waiting
until things cool down.''
Shares of Volkswagen today fell as much as 5.19 euros, or 4.4
percent, to 112.51 euros and were down 1.3 percent to 116.13 euros
as of 9:38 a.m. in Frankfurt. Porsche rose 28.87 euros, or 2.6
percent, to 1143.80 euros.

Hedge Funds

``There's been a lot of speculation in the market about hedge
funds or private equity coming in and buying a stake'' in
Volkswagen, said Gaube. ``Financial investors could certainly take
a blocking minority and that would give us a lot of headaches.''
Private equity firms and hedge funds have been active in the
automotive industry and last year approached Continental AG, the
world's fourth-largest tiremaker, about a possible takeover.
Financial investors, including Blackstone Group have been in
discussions with DaimlerChrysler AG about a possible purchase of
Chrysler, according to people familiar with the talks.
Porsche secured a 35 billion-euro line of credit to finance
the purchase of Wolfsburg-based Volkswagen, though doesn't want a
majority stake at this time, Gaube said yesterday. ``We want to be
able to act, to increase our stake when it suits us,'' he said.
The credit facility to finance the takeover has been arranged
by ABN Amro Bank NV, Barclays Capital, Merrill Lynch International,
UBS Ltd. and Commerzbank AG, Porsche said.

Profit Margin

The sports-car maker's net income as a proportion of sales is
the highest in the industry at 19 percent, based on figures in the
fiscal year ended July 31. That compares with 7.5 percent at Toyota
Motor Corp., the world's second-biggest carmaker, for the year
ended March 31, according to data compiled by Bloomberg.
Porsche said in a statement March 24 that its lower offer for
the common shares reflects the fact that the share price has more
than doubled since it first purchased a stake.
The company exercised the purchase option to take its holding
to 30.9 percent from 27.3 percent, the carmaker said in a statement
today. Porsche will complete the acquisition March 28. German law
requires a takeover offer to all shareholders once an investor
passes the 30 percent threshold.
The benefit of bidding now is that Porsche is freed up to make
future Volkswagen stake purchases as it sees fit. Once having made
the minimum legal bid to all shareholders, Porsche is no longer
required by law to present further purchase offers to all
stakeholders, the company said March 24.

Majority Stake

``With such an unattractive offer they certainly do not run
the risk of winning a majority stake,'' said Christopher Kummer,
the director of the Institute of Mergers, Acquisitions and
Alliances at Webster University in Vienna. ``In the long run,
however, anything short of a majority stake won't make any sense.''
Porsche first bought into Volkswagen in September 2005, saying
it wanted to protect its partnership with its largest supplier.
Since then, Porsche has pushed to gain more influence, installing
Chief Executive Officer Wendelin Wiedeking and Chief Financial
Officer Holger Haerter on the Volkswagen supervisory board, which
is similar to an American board of directors.
Wiedeking has said there is ``huge potential'' for
productivity gains at Volkswagen, the world's fourth-largest
carmaker, which sold a record 5.73 million vehicles in 2006,
including Volkswagen, Audi, Seat and Skoda brand vehicles.
Porsche's sales in the 2006 fiscal year ended July 31 rose 9.5
percent to 96,794 cars and sport-utility vehicles.

1,000-Year Investment

``Porsche wants to get the process started before we start to
see good first-quarter numbers from Volkswagen and continued
positive news from Audi,'' said Adam Jonas, an analyst at Morgan
Stanley in London who has an ``overweight'' rating on Volkswagen
shares. ``Piech and Wiedeking are looking at this as a 1,000 year
investment. This isn't a hedge fund making a trading investment
that they'll get rid of in a few years.''
A month ago, Porsche won a victory at the European Union's
highest court, which moved to eliminate a law protecting Volkswagen
from a takeover. Porsche is ``confident'' that the law will be
struck down, Gaube said.
An advocate general at the Luxembourg-based court European
Court of Justice Feb. 13 recommended scrapping the 47-year-old
German law protecting Volkswagen because it ``restricts the free
movement of capital.'' The EU court, expected to rule within the
next three months, follows the recommendations in most cases.

Volkswagen Law

The so-called Volkswagen Law caps shareholders' voting rights
at 20 percent regardless of the size of the stake. Porsche
currently has the same voting rights at Volkswagen as the German
state of Lower Saxony, which owns 20.5 percent. Eliminating the law
would give Porsche more say in decisions than Lower Saxony, the
second-largest shareholder.
Christian Wulff, Lower Saxony premier, said March 24 that
Volkswagen benefits from having two stable shareholders who have a
``shared vision for Volkswagen.'' He made no reference to selling
the state's holding.
Piech, a former Volkswagen CEO, in November helped orchestrate
the ouster of Chief Executive Officer Bernd Pischetsrieder in favor
of Martin Winterkorn, a long-time Piech prot?g?.
He reached an agreement last month with Wulff to remain
chairman for another five-year term after he received the backing
of the 10 labor representatives on the 20-member board. Piech, 69,
was previously set to step down next month because of shareholder
opposition to his dual roles as Volkswagen chairman and a member of
Porsche's board.
Volkswagen is Porsche's largest supplier. The two companies
build the Porsche Cayenne, Volkswagen Touareg and Audi Q7 sport-
utility vehicles at Volkswagen's plant in Slovakia. Volkswagen will
build the body for Porsche's planned Panamera four-door model at
its Hanover, Germany, factory.

Leander

VW sex scandal in Germany...

http://www.guardian.co.uk/germany/ar...240067,00.html

'Everyone who buys a Lamborghini can pronounce the name just as he likes,' Piech said. 'But those who can't afford one should say it properly.'

C.J. Ichiban

man VW sounds like a great company to be an executive for!

Harvey Yancey

I think the Porsche take over of VW is very smart. Porsche gets a lot more flexibility in lowering production costs by sharing more platforms and VW in the end will become a lot more efficient by adopting Porsche production methods and philosophies.

I see no downside here other than the Veyron and some other non-profitable cars in the VW, ahem Porsche, portfolio will disappear.