VW gets tough with Porsche on finances
BY IAN PORTER | 19th May 2009
Porsche has had to scramble to reassure investors that it can handle the debt, after stalling in its bid to acquire a 75 per cent stake of VW.
Porsche is now considering a share issue to raise new funds.
Porsche directors claim its healthy sports car business still earns enough to make interest payments on the debt, but according to Der Spiegel magazine, Porsche is talking with German state bank KfW about a €1 billion loan.
Porsche declined direct comment on the report, saying only: "We do not name the banks with whom we negotiate."Mr Winterkorn has now cancelled two scheduled meetings – one for last Monday and one for tomorrow – called to discuss how the two German manufacturers would co-operate now that it is clear Porsche cannot afford to 75 per cent of VW.
Porsche currently holds shares representing 51 per cent of VW’s capital.
The decision to call off the Monday meeting set some alarm bells ringing, but investors started to get nervous when a source close to Volkswagen chairman Ferdinand Piech told Reuters that a meeting scheduled for Wednesday was also cancelled.
Discussions could only resume if Porsche sheds more light on its finances, the source said.
The news focused attention on the potential financial risk posed by Porsche's complex web of derivative contracts, which have undermined its attempts to forge closer ties with conservatively funded VW.
"We must get a clear idea of the true state of affairs at Porsche. We need absolute transparency with regard to the present situation," Volkswagen CEO Martin Winterkorn wrote in a letter to staff seen by Reuters.
"It is in the interest of all concerned, our employees, all shareholders and our customers to ensure there is no threat to Volkswagen's financial stability and autonomy."The uncertainty around the situation has undermined Porsche’s non-voting shares. They closed at €41.21 on Monday, compared with €50.47 a month ago and €135 a year ago.
This share price values Porsche at €7.2 billion, barely one 10th the value of Volkswagen, at €66.4 billion.
The uncertainty about the way forward could affect the value of Volkswagen shares, and has led some analysts to recommend switching into VW preferred stock, whose valuation was never influenced by takeover speculation.
German bank Sal Oppenheim, which downgraded Porsche preferred stock to "sell" from "reduce" this month, said the company was "sliding towards disaster" and cut the stock's fair value to €20 per share from €30.
"The longer Porsche waits with the announcement of the rights issue, the more Porsche preference shares will fall and the higher the number of shares Porsche will have to issue," the bank wrote on Monday.
Senior Porsche labor leader Uwe Hueck said during a pause in the family talks that Porsche chairman Wolfgang Porsche and Hans-Michel Piech – brother of the VW supervisory board head – had assured him that the family could guarantee the independence of the Porsche AG sports car unit.
He spoke as more than 6000 Porsche staff marched to insist VW not be allowed to take over the maker of 911 sports cars.
A reverse takeover – where the target, VW, would make an offer for the aggressor, Porsche – was one of the plans being discussed to achieve a merger of the two companies.
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