VW to complete Porsche takeover; Piëch triumphs in family feud

[DukeNukem]

The Volkswagen (VW) Group Chief Executive Martin Winterkorn has announced that the long drawn out saga of its acquisition of Porsche AG will finally come to an end.

The VW Group is set to complete the takeover by August 1, 2012 by acquiring the remaining 50.1% stake of Porsche AG from its holding company, Porsche SE for 4.46 billion euros. That takes VW’s total outlay to about 8.4 billion euros. The Porsche AG includes the SUV and sports car units.

Earlier, in 2009 VW had acquired 49.9% stake for 3.9 billion euros. However, a series of legal and tax problems kept the deal from going through until 2014. But now that this historic deal has gone through, both parties will be pleased to benefit from cost savings, earlier than expected.

But perhaps one person will be more pleased than anybody else; the 75-year old VW Chairman Ferdinand Piëch, whose own personal rivalries with his cousins has been entrenched in the VW-Porsche saga for years.

The Porsche family

It all began with Ferdinand Porsche, the brilliant Austrian-German auto engineer and pioneer famed for creating VW Beetle and establishing the Porsche brand. He was the patriarch of the Porsche-Piëch families whose bitter feud would go on change the landscape of the German auto industry.

Ferdinand Porsche had two children - a son, Ferry and a daughter, Louise. Ferry’s children attained the Porsche surname while Louise’s children got her husband’s surname Piëch.

The feud began in the early 70s with Louise’s son Ferdinand Piëch on one side and with Ferry’s sons Ferdinand Alexander, Wolfgang and the remaining Porsche brothers on the other. The cousins had worked in harmony at one point for the Porsche Company. But personal and professional rivalries took over and soon the cousins were locked in conflict so strong, the entire family met and decided that nobody from the family would actively work in Porsche but remain silent partners instead.

Piëch vs. Porsche

This opened the door for Ferdinand Piëch to join Audi, a company whose fortunes he turned around on his way to the chairmanship of the VW Group in the 90s. Despite numerous squabbles with the Porsche family and failed marriages, his professional life took off as he helped VW grow into Europe’s biggest auto manufacturer while acquiring major companies like Lamborghini and Bentley on the way.

Meanwhile, the 90s also saw Porsche enter a crisis as its main market, the US, went through economic difficulties. In 1993 Wendelin Wiedeking was promoted as the CEO. A previously unknown executive, Wiedeking revived Porsche but was criticised for using controversial methods and for being violent to his employees.

Porsche attempts takeover

In fact it was Wiedeking who initiated the shocking bid to take over the VW Group in 2005, with Porsche chairman Wolfgang Porsche. By 2008, they had borrowed enough funds to increase their stake in the VW Group to 75%.

Their last obstacle was the controversial “Volkswagen Law”, under which any shareholder in VW could not exercise more than 20% of voting rights, even if their stake in the firm was bigger. However the European Court of Justice ruled against the law clearing the way for Porsche.

Volkswagen’s comeback

At this time, Ferdinand Piëch wasn’t as influential as he used to be. But he was still able to engineer a move that moved the balance of power in VW’s favour. As reported in the German weekly Der Spiegel, Piëch made a strong ally in Christian Wulff. He was the governor of the German state of Lower Saxony who part owned the VW Group and had permanent veto power in company matters. Piëch realised that using this veto was the only way to ward off Porsche’s hostile takeover bid. It was Wulff then, who convinced Chancellor Angela Merkel to ensure that Lower Saxony kept its veto power, no matter what happened to the VW Law. And it worked.

With one battle won, Ferdinand Piëch ensured that Porsche’s influence on the VW board decreased. Porsche were further hit by the global financial crisis. The failed takeover piled up debts of over 10 billion euros. CEO Wiedeking was soon axed and Porsche opted for a merger.

However Piëch rejected the merger on grounds that Porsche were weighed down by huge debts and lawsuits by investors. He instead crossed his cousin, Porsche chairman Wolfgang, by leading the takeover of the sport car manufacturer by the VW Group.

The takeover

However, the complete takeover was postponed, firstly due to the huge lawsuits against Porsche by hedge funds that had invested in them. VW resolved this issue by agreeing to buy only Porsche AG and not its holding company Porsche SE, who will have to deal with the lawsuits.

There was also the matter of a possible 1.5 billion in taxes for VW if the deal went through before August 2014 due to the deal being bracketed as “takeover” under German tax laws. However, the deal will now go through two years earlier than planned due to a loophole in the law, whereby, a single share included in the payment to Porsche SE, would bracket the deal as “restructuring” and not “takeover”.

Expectations

The VW Group sees this acquisition as a big step forward in its aim to become the world’s leading car manufacturer by 2018. To this end, it intends to sell 10 million vehicles annually. The current world leader in auto manufacturing is Toyota followed by GM and VW.

This deal will also fit in nicely with VW’s current expansion strategy in the US, one of the few markets it has failed to impress. VW will hope to exploit Porsche’s strong presence in the US. It also opened a factory in Tennessee last year and is adding an Audi plant in Mexico.

How much value will Porsche add?

Reuters reported that the Porsche deal will lift VW’s earnings by 6% next year and boost their full year earnings by more than 9 billion euros. Porsche is one of the most profitable car manufacturers in the world with global sales 20% above their previous best and it has an impressive profit margin of 18%.

[Champion]

That DukeNukem, is a nice write-up. Quite informative. I was curious about the history of the bid when I read in the papers of the takeover. But I kind of didn't bother to dig the facts. And this write-up has thrown in many surprises too. Would have missed so much if not for your initiative. Thank you.

Ciao
Champion

[el lobo 6061]

A big thanks to DukeNukem, excellent article.

Had been reading about it but didn't knew about the long history of Porsche & VW. Now I certainly know about it with correct facts. Do keep us updated as the whole takeover or should I say restructuring completes.

The pic in the end is from my ownership thread.

Cheers.

[AVR]

Thanks DukeNukem for the summary. Without a doubt, its been one of the most interesting business sagas of recent times. The hunter becomes the prey and how. "Isme drama, hain emotion hain, masala hain". What tops it all is that they are cousins!

Been following this on Economist for a few years now:
Start with this article

See how tables turned in this article

Game over here

[GTO]

Great report, DukeNukem. Thanks for sharing.

In light of the developments, I've closed the older thread and moved your post to a new, dedicated thread.

[ambivalent_98]

Thanks for the detailed report. The surnames always kept me guessing. Piech and Porsche and then there was a Ferdinand Porsche and now there is a Ferdinand Piech. But after reading the report so well written my confusion is cleared.
Also its a very interesting read and we will wait to see how it pans out for VW. Hope they do well.

[mempheS.D]

Thanks for sharing this article. Food for thought - Despite all this unrest and debt, how do Germans still manage to conceive automobile beauties amidst all the turmoil?

[volkman10]

Porsche profit jumps on 911 demand as VW purchase nears.

Porsche AG said first-half profit jumped 21 percent on demand for the new-generation 911

Porsche's profit gain comes as the European auto market heads for a fifth straight annual decline. The slowdown has prompted PSA/Peugeot-Citroen and General Motors to consider shutting factories in the region, while Ford warned that its European losses could exceed $1 billion this year.

Volkswagen Group agreed on July 4 to purchase a 50.1 percent stake in the brand from Porsche SE for 4.46 billion euros, assuming full ownership of the sports-car maker, in which it already had a 49.9 percent stake.

The transaction is due to close next week, VW Chief Financial Officer Hans Dieter Poetsch said yesterday

http://www.autonews.com/article/2012...#ixzz1iGMA7hqO

[AlphaKilo]

Originally Posted by mempheS.D

Thanks for sharing this article. Food for thought - Despite all this unrest and debt, how do Germans still manage to conceive automobile beauties amidst all the turmoil?

Thats all due to still sticking to the old principles of not giving up the core research and very strict economic policy. Finally more than anything a will from the government to push its brand "Made in Germany".

[DukeNukem]

Europe's biggest carmaker Volkswagen has wrapped up its takeover of German sports car group Porsche two years earlier than planned in a move they said would strengthen both firms.

It is FINALLY over and done with.

Source: VW, Porsche finalise early merger