IHS Global Insight Perspective | |
Significance | Porsche's holding company, Porsche Automobil Holding SE, will launch its planned EUR5-billion capital increase on 30 March as it looks to reduce its debt burden. |
Implications | The new shares will be offered to existing shareholders at EUR38, with existing family shareholders led by Wolfgang Porsche and Ferdinand Piëch having already agreed to the subscription. This equates to a 29% discount on the current value of Porsche SE shares, and the company is pressing ahead with the capital increase despite the recent volatility in the financial markets. |
Outlook | The capital increase will reduce debt incurred as a result of Porsche's failed takeover of VW to around EUR1.5 billion. However, it means that in effect, the family shareholders led by cousins and rivals Wolfgang Porsche and Ferdinand Piëch, have ultimately picked up the bill for the failed VW takeover bid. |
Porsche Automobil Holding SE is pressing ahead with its EUR5-billion (USD7-billion) capital increase to reduce its debt burden by launching the share sale on 30 March, according to an Automotive News report. This is despite the recent falls in the global markets in recent weeks as a result of the situation in Japan and the Middle East. The offer will see the company's current owners, the Porsche and Piëch families and Qatar Holding LLC, offered the new share capital for the price of EUR38, which is around a 30% discount on the current price of just under EUR55 as of 29 March. The company is looking to reduce its bank debt to around EUR1.5 billion from the capital injection which will result from the shareholder. The sale will be split between preference and common stock with EUR2.5 billion. Volkswagen (VW) now owns 49.9% of Porsche's automaking operations, Porsche AG, while Porsche has a similar 50.7% shareholding in the VW Group. However, despite the cross-shareholding structure, there are agreements in place which dictate that VW is now very much the senior partner in the relationship and has de facto control of Porsche, something that is illustrated by VW chief executive's Martin Winterkorn's position on the Porsche SE supervisory board and the appointment of VW's former head of product strategy Matthias Mueller as Porsche's new chief executive.
This capital increase has become necessary after Porsche incurred around EUR10 billion of debt during its failed takeover of VW which was launched by former chief executive Wendelin Wiedeking and CFO Holger Härter. The company renegotiated its original loan conditions as part of the initial agreement between Porsche and VW to move towards creating an integrated company, with debt being reduced to EUR8.5 billion in November 2009 as a result, and further repayments have been made since then as part of the repayment schedule agreed.
Outlook and Implications
The capital increase is necessary to refuel the Porsche Automobil Holding SE balance sheet with fresh liquidity following the disastrous consequences of the failure of the VW takeover bid had on the company's finances. Porsche's takeover attempt of VW stalled in 2009 when it failed to raise the capital to convert cash-settled options in VW into actual shares following the collapse of the capital lending markets in the aftermath of the financial downturn. This process in itself has caused extensive difficulties to Porsche as many hedge funds were shorting VW shares at the same time that Porsche was going about acquiring cash-settled options unbeknownst to the hedge funds, as Porsche claimed that German stock market rules meant it did not have to disclose the purchases. This is being disputed by hedge funds based in both the US and Germany and there are currently legal cases pending ion both countries looking to secure damages from Porsche for the losses incurred by the hedge funds as a result of the massive spike in VW's share value in October 2008 which occurred when Porsche's actual position in VW shares became public knowledge.
Both these issues, the capital increase and the outstanding legal cases, are central to the plans for a full merger between the VW Group and Porsche SE. While the capital increase is now forging ahead, it is difficult to put any kind of precise timescale of the resolution of the legal issues, and this is why VW Group CFO Hans Dieter Pötsch said recently that it is looking less likely that the merger will be completed as to the original timescale (see Germany: 18 March 2011: Porsche Preparing for Future Without VW Merger, Posts EUR1.29-Bil. Profit After Tax for Shortened Financial Year) which set the second half of 2011 as the planned merger date. On a practical level, this is having little tangible effect on the increasing integration of Porsche with VW's operations as both companies increase their collaboration on vehicle development, with Porsche developing a new mid-engined sports car platform for itself and VW and Audi. While there will be more sharing of powertrains and components purchasing synergies between the two companies, as they work towards integrating Porsche into the VW Group's wider engineering and vehicle R&D strategy.