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In a move billed as a defensive maneuver on the part of the Stuttgart-based sports car manufacturer, Porsche AG announced that it plans to acquire roughly 20-percent of Volkswagen AG. The purchase is intended to protect the manufacturer of brands including Volkswagen, Audi, SEAT, Skoda, Lamborghini, Bentley and Bugatti from a potential hostile takeover, given the company’s shared chassis and technology projects like the SUV platform Porsche’s Cayenne shares with the Volkswagen Touareg and Audi Q7 as well as the company’s new hybrid technology shown in concept form at the Frankfurt IAA two weeks ago.
“Dr. Ing. h.c. F. Porsche AG, Stuttgart, seeks to acquire a share of approximately 20 per cent in the stock capital of Volkswagen AG, Wolfsburg, entitled to vote.,” Porsche said in a statement.
Porsche’s Cayenne is produced in Volkswagen’s Bratislava, Slovakia plant alongside the Volkswagen Touareg and soon to be joined by the Audi Q7. Production of the Porsche SUV makes up 30-percent of the sports car company’s sales volume, leaving Porsche very vulnerable were Volkswagen AG to fall victim to a hostile takeover.
“Making this investment, we seek to secure our business relations with Volkswagen and make a significant contribution to our own future plans on a lasting, long-term basis,” Porsche’s managing director Wendelin Wiedeking was quoted in the Porsche release.
The company further clarified that it had no intention to acquire Volkswagen. The amount of shares Porsche plans to acquire would not force them to submit a public bid for the takeover of the much larger Volkswagen AG.
“Our planned investment is the strategic answer to this risk. We wish in this way to ensure the independence of the Volkswagen Group in our own interest. This “German solution” we are seeking is an essential prerequisite for stable development of the Volkswagen Group and, accordingly, for continuing our cooperation in the interest of both Companies,” said Porsche’s CEO.
Volkswagen AG is currently protected from takeover via the so-called Volkswagen law. However, a ruling expected in 2007 by the European Court of Justice is expected to leave the German industrial leader exposed to such an occurrence, causing concern in Wolfsburg and Stuttgart alike.
The German weekly publication Der Spiegel broke the story late last week, reporting that the deal could be worth over 4 billion Euros (approx. 4.8 billion dollars) according to Bloomburg.com. Porsche has increased its share value 44 percent this year, also according to Bloomburg, which places its market value at a healthy 11.9 billion. It’s theorized that the purchase could adversely affect Porsche share pricing, though Volkswagen stock is currently low, which could mean a good purchase price for Porsche.
The announcement followed speculation that US billionaire Kirk Kerkorian was considering buying into Volkswagen AG. The man, who began his fortunes in Las Vegas hotels, has proven himself a thorn in the side of Chrysler in the past, establishing himself in a similar position as major stockholder. Kerkorian’s interests would most likely not be in line with either those of Porsche or Volkswagen.
In a press release responding to Porsche, Volkswagen AG Chairman Dr. Bernd Pischetsrieder welcomed the interest in Porsche, suggesting a stable shareholder structure provided by Stuttgart’s investment would be good for Volkswagen’s long-term future.
According to Bloomburg, Porsche is not planning on acquiring the 18-percent of Volkswagen AG owned by the state of Lower Saxony, though a representative for Lower Saxony confirmed to the financial publication that it currently plans to stick with its commitment to Volkswagen.
Interestingly, former Volkswagen head Ferdinand Piech is also a member of the family that controls Porsche. Piech, the grandson of Ferdinand Porsche, has led a successful career that has spanned positions at Porsche, Volkswagen and Audi with projects such as the Porsche 917, Audi’s venerable quattro all-wheel drive system and the return of the iconic Beetle notches in his belt. Piech still maintains a position as chairman of Volkswagen’s supervisory board.
Porsche Press Release: Porsche Seeks to Acquire Share in Volkswagen
Stuttgart. Dr. Ing. h.c. F. Porsche AG, Stuttgart, seeks to acquire a share of approximately 20 per cent in the stock capital of Volkswagen AG, Wolfsburg, entitled to vote. Porsche is taking this decision because Volkswagen is now not only an important development partner for Porsche, but also a significant supplier for approximately 30 per cent of Porsche’s sales volume. In the words of Porsche’s President and CEO: “Making this investment, we seek to secure our business relations with Volkswagen and make a significant contribution to our own future plans on a lasting, long-term basis.” Porsche is in a position to finance the acquisition of the planned share in Volkswagen through its own, existing liquidity. After careful examination of this business case, Porsche is confident that the investment will prove profitable for both parties.
The Supervisory Board has authorised Porsche’s Board of Management to implement the plan envisaged. Porsche is in contact with the Board of Management of Volkswagen in order to scrutinise and verify the options available in accordance with appropriate resolutions already taken at Volkswagen’s General Meeting. The share assumed will not under any circumstances reach the threshold at which Porsche would be required to submit a public bid for the takeover of Volkswagen.
The planned acquisition is to ensure that, following the anticipated abrogation of the VW Act under an appropriate judgment handed down by the European Court of Justice, there will not be a hostile takeover of Volkswagen by investors not committed to Volkswagen’s long-term interests. The European Court of Justice is expected to hand down such a judgment latest in spring 2007.
In the words of Porsche’s President and CEO: “Our planned investment is the strategic answer to this risk. We wish in this way to ensure the independence of the Volkswagen Group in our own interest. This “German solution” we are seeking is an essential prerequisite for stable development of the Volkswagen Group and, accordingly, for continuing our cooperation in the interest of both Companies.”
Volkswagen Press Release: Volkswagen welcomes Porsche’s interest in a strategic participation
Germany’s position as an automotive and technology basis strengthened
Wolfsburg, 25 September 2005 – Porsche AG, Stuttgart, today announced its interest in acquiring some 20 percent of the voting capital of Volkswagen AG. For Porsche, the move is motivated by the fact that Volkswagen has not only become an important development partner, but also a major technology and production partner for some 30 percent of sales.
Speaking on behalf of the Board of Management of the Volkswagen Group, its Chairman Dr. Bernd Pischetsrieder welcomed the strategic interest of Porsche AG in participating in the company. He said a stable shareholder structure was very important for the automotive business with its long term orientation.
Volkswagen and Porsche have already been cooperating on projects such as the Touareg/Cayenne for quite some time. The partners recently announced technological cooperation in the field of hybrid powertrains at the International Motor Show (IAA) in Frankfurt. Volkswagen welcomes the additional support brought to this cooperation by a participation which lends further weight to these collaborative efforts.
The participation envisaged by Porsche also substantiates one of the Volkswagen Group’s own business policies; for the automotive business with its long term orientation, a stable shareholder structure is very important.
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