IHS Global Insight Perspective | |
Significance | VW has announced that it will form an integrated automotive group with Porsche under the leadership of Volkswagen, following yesterday's news confirming the departure of Porsche chief executive Wendelin Wiedeking and chief financial officer Holger Härter. |
Implications | Wiedeking was the obstacle in the way of previous attempts to work towards merging the two companies as Porsche battled to retain its independence despite its liquidity problems. Wiedeking's departure was a major victory for VW supervisory board chairman Ferdinand Piëch, and he will now get he structure he preferred for the two companies. |
Outlook | Given Porsche's current liquidity problems and its stalled takeover of VW, it appears that the VW proposal is the best option for both companies. It is hard to argue with VW Chief Executive Martin Winterkorn's contention that it will 'make two strong companies even stronger." |
Following the announcement of the departure of Porsche CEO Wendelin Wiedeking and CFO Holger Härter, Volkswagen (VW) quickly released a press statement outlining the two companies' plans to forge an integrated company together. The two companies initially announced that they would begin discussion to work towards an integrated company structure together at the beginning of May (see Germany: 7 May 2009: Porsche and VW Agree Merger), but it would appear that Wiedeking and Härter had been far from enthusiastic participants in these discussions and were widely seen by VW's management and the head of VW's supervisory board Ferdinand Piëch as an obstacle to these talks reaching a successful conclusion. With Porsche's debt crisis reaching unsustainable levels it appears that Wiedeking and Härter lost the backing of Porsche's biggest shareholder, Wolfgang Porsche which ultimately led to their departure (see Germany 23 July 2009: Wiedeking and Härter Dismissed by Porsche, Board Approves Capital Increase and Paves Way for VW Merger). VW's statement was unambiguous in declaring that its management team would ultimately be in charge of the new entity. The VW management board and the new chief executive of Porsche Michael Macht will now meet and work out a final structure for the new integrated company. The statement said, "The integrated automotive group will be formed from the progressive participation of Volkswagen in Porsche AG and the subsequent merger of Porsche Automobil Holding SE and Volkswagen AG." However, VW was also careful to reiterate that Porsche's senior management team would retain its independence. The statement added, "…final concept for the envisaged union of Volkswagen and Porsche will preserve the Volkswagen Group's financial solidity and sustain its ability to act as well as ensuring Porsche's independence." VW CEO Martin Winterkorn believes that it is the best solution for both his company and Porsche. In the statement he commented, "The envisaged union of Volkswagen and Porsche follows a compelling industrial logic and offers promising perspectives: it makes two strong companies even stronger. Volkswagen and Porsche have excellent know-how at their disposal and can use their resources even more efficiently by combining them. For this reason, we expect additional growth opportunities, safeguarding existing jobs and creating new ones. At the same time, we can call on our considerable experience in the integration of proud and successful brands rich in tradition." Winterkorn also highlighted the example of Audi as an example of a brand that has remained largely independent in terms of its strategic decision making flourishing under the VW group umbrella.
The VW board also welcomed the inclusion of Qatar by Porsche in its investment strategy. Although the form of Qatar's investment in Porsche has yet to be confirmed it appears increasingly likely that Qatar will purchase the VW share options that Porsche currently controls which equate to around 20% of the company's entire ordinary shares. According to a Dow Jones report, Qatar will take on around a 17% stake in VW through the purchase of Porsche's share options initially, while this figure could eventually rise to 19%. This could see Qatar paying around 5-8 billion euro for this stake at a rough estimate, depending on the varying prices of the options that Porsche agreed, making Qatar the third largest shareholder in VW after Porsche and the State of Lower Saxony. This would help meet Porsche's immediate requirement for a capital increase of 5 billion euro that was agreed at the Porsche SE supervisory board meeting earlier in the week. It is likely that VW will purchase either a full or partial stake in Porsche SE, which would help clear Porsche's combined debt of over 10 billion euro off its books. Some analysts' estimates put Porsche combined debt as a result of the failed takeover of VW at as much as 14 billion euro.
The Financial Times (FT) reported that the merger between the two firms was scheduled to be completed by 2011, although there will be complex discussions involving the many stakeholders in both companies before a final structure is agreed going forward. Germany's biggest industrial trade union IG Metall said yesterday that its members should have stake in the new company that emerges from the VW and Porsche alliance. Union chief Bertold Huber said he wanted a number of conditions in the creation of the new company. He said, "We are prepared to take a constructive role in the upcoming process. In addition to expanded co-determination we want employees to take a stake in the capital." However, Porsche's largest individual shareholder Wolfgang Porsche has said that there will be no job losses at Porsche as a result of the merger.
Outlook and Implications
After nearly four years of infighting, family squabbles and legal wrangles it appears that common sense has prevailed in Stuttgart and Wolfsburg. The planned takeover of VW by Porsche, led by Wiedeking and Wolfgang Porsche was always a massively ambitious enterprise and has ultimately cost Europe's most successful and long-serving automotive executive his job and cost Porsche in the region of 15-20 billion euro in unnecessary spending. If the ultimate structure of the new company will see Porsche subsumed into the VW Group as a unit with as much autonomy, as for example, Audi, this result could have almost certainly been achieved without such a huge personal and financial cost. But the egos involved and the complicated family shareholding structure at Porsche meant that the simple and cheapest solution was not ultimately pursued. Porsche would have been better served in terms of being able to influence VW if it had retained a 20-30% shareholding in Europe's largest carmaker.
Its attempts to secure a majority and then a domination stake just as the credit crunch hit the financial markets are ultimately what led to the failure of the plan and Wiedeking's downfall. There is little doubt that now the opposition to a merged company in the form of Wiedeking has been removed, that the combined group solution represents the best industrial logic for both VW and Porsche. As VW CEO Martin Winterkorn says, both companies are strong and by working more closely together they should emerge stronger, notwithstanding Porsche's current short-term liquidity issues. Long-term, there remain interesting questions over how Porsche will be merged with the VW Group, what industrial and technological collaborations it will carry out and how it will co-exist alongside companies that are actually major rivals, such as Audi and Lamborghini. But the potency of the Porsche brand combined with the synergies and R&D resources of the VW Group should, in the longer term, present a potent force within the industry.