VW finally outruns Porsche in £3.6bn deal

VW has reached an agreement to buy the 50.1% of Porsche it doesn't already own for £3.6bn, a deal which started life the other way round back in 2008.

by Andrew Saunders
Last Updated: 31 Jul 2013
The cash deal (plus a single VW common share) is due to go through by August 1 and will see the fabled Porsche sports car marque added to VW’s burgeoning stable, which already includes Bentley, Bugatti, truck-makers MAN and Scania, and budget car brands Skoda and Seat.  

VW chief exec Martin Winterkorn said in a statement that the deal was ‘good for Volkswagen, good for Porsche and good for Germany as an industrial location.’ It is anticipated that the combined group will realise €320m of combined ‘synergies’ (ie efficiency savings) which will be split equally between the two firms.  

VW and Porsche already co-operate on several projects, not least the Porsche Cayenne sports SUV, whose huge profitability is in no small measure due to the fact that it is based on VW’s Touareg platform, supplied at very attractive prices to the Stuttgart firm. The merger will enable even closer ties to form between the two model ranges and should help VW achieve its goal to become the world’s largest carmaker as well as one of the most profitable.

The last attempted union fell apart in September 2011 as a result of a potential billion euro tax bill. But thanks to the efforts of lawyers this issue has been overcome, via a controversial loophole whereby it is presented as a restructuring deal rather than a merger.

Whether merger or restructuring, this is a deal which has been on the cards one way or another at least since Porsche attempted an audacious reverse takeover of VW back in 2008. It failed thanks to shareholder resistance and funding difficulties as a result financial crisis, but left Porsche with a mountain of debt and billions of dollars of lawsuits from disgruntled investors who claimed the firm had misled them.

The solution for both parties was to come at it from the other direction, a VW takeover of Porsche – VW duly acquired a 49.9% stake in 2009. Today’s announcement thus marks the end of a four-year process, made more complex in the usual German fashion as a result of the dynastic politics being played out in the background.

VW is controlled by two rival family shareholder groups, each headed by a grandson of the founder, Ferdinand Porsche. Wolfgang Porsche is one, his cousin Ferdinand Piech the other. Both sit on the VW supervisory board; in fact, Piech chairs it. Back in 2008 Wolfgang Porsche favoured the attempted revese takeover of VW, which was vigorously pursued by then CEO Wendelin Wiedeking. Indeed, Piech may even have been the plan’s ultimate author. But when it failed, it was Wiedeking who paid the price.  

Just to add to this almost Shakesperean level of intrigue, it was Ferdinand Porsche’s son Ferry who turned Porsche into a sports car maker with the 356 model of 1948. It was based on, you guessed it, the original VW Beetle designed by his father. So the ties between the firm are complex and go back a long way.

All in all it’s good news for VW management, who needed a growth story for investors following the failure of its other recent attempt at an horizon-expanding tie up, with Suzuki. The agreement with the Japanese firm was to lead to co-operation on small cars, but apparently foundered due to cultural incompatibility.

Here at MT we don’t think this latest deal is likely to produce much in the way of small car sales however – unless there are plans for a Porsche-badged VW Up in the pipeline. Rort rort! 

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