Volkswagen and Porsche muzzled their alpha males, and the bean counters hammered out a deal. According to Reuters, “Volkswagen and Porsche have broadly agreed on details for a deal to combine two of Europe’s most storied automakers.” Reuters has it from two VW supervisory board members, so this should be pretty close to what will go down:
VW buys up to 49 percent in Porsche AG, the sports car unit of the Porsche/Piech-owned Porsche Automobil Holding SE.
The Gulf state of Qatar will buy Porsche’s package of derivatives, which are worth about 5 billion euros. These derivatives can be converted into a 17 percent stake in Volkswagen.
Porsche’s controlling families could sweeten the deal by selling some crucial voting shares to Qatar. It remains unclear whether Qatar will receive voting shares in Porsche, in Volkswagen, or in both.
VW’s home state of Lower Saxony most likely maintains its blocking minority stake of 20 percent.
The Porsche/Piech-owned Porsche Automobil Holding SE holds 51 percent in Volkswagen.
Are we confused yet?
The combined entity will most likely be led by VW CEO Martin Winterkorn (with Piech hovering in the background). They are still thinking of calling the new entity “Auto Union,” a move which this reporter had suggested in the late ’70s. (The invoice is in the mail.)
It’s no big surprise that the Volkswagen and Porsche should coincide together. They have since day one. Ferdinand Porsche went into development on the Beetle back in 1933. Porsche makes one of the best and longest road going sports cars the 911 which is an amazing machine and has withstood the test of time. It keeps its clean lines and there are no radical changes in styling like most cars today, only in it’s performance which no one can complain about. They have moved into the SUV market with the Cayenne and now the sedan market with the Panamera. They have always had success even in racing with the 917 of the 70’s and I think the merge will go over well. Volkswagen does a lot of great things and has great sedans and SUV’s which could merge over to Porsche. I don’t see a VW Super car like the 911 happening though. in tough times for automakers it’s smart to unite together and with two companies as good as them it’s even sweeter!
Has the Porsche/Piech-owned Porsche Automobil Holding SE come out financially better now that the dust is settling in all this?
Other than a power play, I can’t see what value this would add to VW.
All this deal will do is bring another brand to VW’s (quite bloated, in my opinion) lineup.
I think VW need to start some product rationalistion (Audi TT/Porsche Boxster) and probably look at retiring some brands. VW is slowly becoming the GM of Europe. At the moment, VW is bearing a profit, but so was GM during the 1990’s and early 2000’s.
So the bride chose a groom with a Porsche and a receding hairline? Hmmm, that shows where the priorities are.
@KatiePuckrik, one key difference with regard to the brands is that VW’s brands overlap far less than GM’s do/did.
GM arguably had six mass-market brands in Buick, Chevrolet, GMC, Oldsmobile, Pontiac, Saab and Saturn. VW has three (VW, Seat and Skoda).
GM has two premium brands to VW’s one (Cadillac and Hummer vs Audi). VW then has some high-end brands in Lamborghini, Bentley and Bugatti (oooh, now there is a Piech folly) but those don’t overlap anything like the GM brands do/did. And Scania clearly does not conflict with anything else.
And yet VW has arguably one of the most effective platform strategies of any of the top manufacturers.
Katie –
Porsche is the most profitable (profit margin wise) in the world. VW is the most profitable mass market car company in the world. They are in no way like GM, there is a big big difference b/t platform/technology sharing and re-badging. The units are run as seperate companies (like GM in the 50’s and 60’s) VW and Audi and Porsche (with seat and skoda running under VW, lamborgini under Audi and Bugatti and Bentley running as seperate micro companies as well) will all have thier own seperate management boards who will decide the direction that is best for that brand, not Audi has the TT so why do we need the boxster and vice versa. The only things that will really change are some management and administrative layers will go away.
Toyota is the one beginning to look like GM (Bland mass market vehicles with no soul or real appeal other than a reputation earned in a past generation)
+1 RNC. The analogy to GM in its heyday is apt.
Part of what ruined GM was too much “rationalization” from the 1970s onward. The messy and seemingly wasteful competitive efforts between divisions was all in all a good thing. GM circa 1950 also did an exceptional job of sharing basic platforms while also having each division pursue a unique identity and market niche.
I admit I have been very confused by this whole Porsche, VW drama. However, it looks to me that they were once bailed out and now partially owned by lower Saxony, and now they are getting bailed out and partially owned by Qatar, an OPEC member no less. If they are as profitable as others are saying, why do they need the Qatar money, and for equity at that?
So they are now partially owned by two govt. entities.
This looks like Government Motors European style.
I don’t think a VW or Porsche is in my future.
Lower Saxony has always owned 20% of VW (has been a rather profitable investment for them), after the war the (German) state governments made investments to restart industry. Qatar is purely buying this as a diversification (they are not bailing out anyone, both companies are profitable, this isn’t Opel). Porsche has a boatload of debt associated with the options for VW (since they are contracts it is considered debt) and this allows Qatar to assume 17% of volkswagon and unspecified amount of Porsche SE (the holding company (finance, dealerships and AG) which owns 51% of VW and will own 51% of Porsche AG while VW is buying 49% of Porsche AG (the car making part).
rnc
spin it any way you want to.
A “boat load of debt” that has to be payed and can’t be without Qatar investment is a bailout in my book.
Oh, and are you sure that wasn’t US Marshal plan money that Saxony “invested”?
They could have paid it the whole idea was to combine VW and Porsche to protect both (in the end only 10% of VAG will be openly traded), it was a matter of control (when the VW laws weren’t struck down porsche could have held 80% of VW and it couldn’t have controled VW, so it might as well have sold the options to qatar), it doesn’t matter which way it was accomplished the piech and porsche families will still control 51% of the combined entity when its all said and done, it was just a matter of which Alpha male won out, in the end it was the Piech alpha (chairman of VW) not the porsche alpha (chairman of Porsche).
And no it was $300-500 million in Gold stashed in Switzerland before the war ended (not really ever talked about) those funds dwarfed the Marshall plan in funding the rebuilding of Germany.
Accounting wise (i.e. financial reporting to the Street wise), they have to designate an acquirer and an acquired company and estimate some goodwill on the transaction. They can’t account for it as a merger.
I don’t really know which is which, maybe VW is the acquirer based on Saxony not being budgable plus Porsche mgt departure. Also which equity is available to the market afterwards. This does look a lot like a merger to me but I think it won’t be accounted for that way.
I might be inspired to look up VW financials and actually read them.
Off topic, I read GM 10k a year and half ago, i think it was to read about goodwill impairment or maybe deferred tax asset impairment, and it was so dismal. Complete American systemic failure.