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Volkswagen to take full control of Porsche

Thu, 05 Jul 2012

Volkswagen Group's decision to take full control of Porsche Automobil Holding SE's carmaking business is seen as positive by analysts.

VW said it has agreed to buy the remaining 50.1 percent of Porsche SE's automotive business that it doesn't already own for 4.46 billion euros ($5.54 billion), ending a seven-year takeover saga that divided two of Germany's most powerful families.

The agreement means Volkswagen can now fully fold the Porsche automaking business into its stable of brands, which range from Audi and Bentley sedans to Skoda and Seat volume models and Ducati motorbikes.

It leaves Porsche SE, which is controlled by the Piech-Porsche family, still owning 50.7 percent of VW's common stock.

"To have the Porsche clan as owners and the anchor shareholder is good for Volkswagen and for Germany," said Christoph Stuermer, an IHS Automotive analyst in Frankfurt. "This has changed the cultural heart of the company. Volkswagen has become substantially stronger and long-term oriented."

'Good deal'

Erich Hauser, a Credit Suisse analyst in London, said: "It's very positive for VW as they get 50 percent of an asset they value at $32.32 billion euros on their own books for $5.54 billion. If I was a Porsche shareholder, I'd feel slightly short-changed though."

Morgan Stanley analyst Stuart Pearson said VW is getting a good deal. He predicted 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," he said.

With sales volumes running close to 20 percent above their previous record, Porsche's main challenge is "securing sufficient production capacity," and integration with VW may help, Pearson said. VW already plans to begin assembling some Porsche models in its own plants.

At a press conference at its Wolfsburg, Germany, headquarters on Thursday, VW said it expected the integration of Porsche to be fully ratified by Aug. 1.

"We can now cooperate even more closely and jointly leverage new growth opportunities in the high-margin premium segment," VW CEO Martin Winterkorn said in a statement. "Combining their operating business will make Volkswagen and Porsche even stronger--both financially and strategically--going forward."

$8.7 billion cash drain

Porsche's earnings contribution for this year will be mainly offset by the purchase price, VW said. By revaluing its existing shares in Porsche, VW expects to book a non-cash gain of more than $11.18 billion and predicts a liquidity drain on its own automaking division of about $8.7 billion.

Volkswagen is paying the purchase price, plus transferring one share to Porsche, in a move that allows the carmaker to classify the merger as a restructuring rather than a takeover.

Doing so means VW avoids a tax bill on the purchase of about $1.24 billion. The agreement with tax authorities has been criticized by some German politicians.

VW was able to proceed with the transaction after reaching an agreement with German tax authorities, it said

The cash deal is based on an equity value of $4.82 billion and also includes what the Porsche holding company would have received in dividend payments and half of the forecast synergies from the combination.

"I am not surprised by the deal as such, only by the timing," said Albrecht Denninghoff, a Frankfurt-based analyst at Silvia Quandt Research. "Both parties have wanted the integration for a long time."

Piech-Porsche family split

Porsche's attempt, starting in 2005, to take over Volkswagen, which makes more cars in a week than the sports-car maker does in a year, split the Porsche-Piech family that controls Porsche.

Ferdinand Piech, VW's chairman, crossed his cousin Wolfgang Porsche to thwart the plan, which fell apart after Porsche's SE's debt rose to $13.67 billion in the midst of the financial crisis.

VW helped Porsche SE in its debt crisis by buying nearly 50 percent of Porsche's carmaking business for $4.85 billion at the end of 2009.

Piech, 75, the former VW CEO, was elected to a third term as VW chairman in April and has since solidified control of Volkswagen. His wife, Ursula, took a seat on the company's supervisory board earlier this year.

Porsche SE said it will repay remaining bank liabilities of $2.49 billion in full from the $5.54 billion that it will receive. "The major portion of the liquidity remaining is intended to be used for strategic equity investments, focusing along the automotive value chain," it said.

By Automotive News Europe