IHS Global Insight Perspective | |
Significance | Porsche is facing one of the most important weeks in the company's history with an extraordinary board meeting scheduled for Thursday (23 July) to decide on the future of chief executive Wendelin Wiedeking and whether to accept a reported offer from VW to acquire 100% of the company. |
Implications | Press stories have emerged over the weekend that Porsche's debt level is considerably larger than previously thought at 14 billion euro, increasing the sense of urgency surrounding the need to complete a deal that would refinance Porsche. |
Outlook | Thursday's extraordinary board meeting looks set to decide the future ownership and management structure of both Porsche and VW with Porsche's increasingly serious debt problem meaning that it appears increasingly likely that a recapitalised Porsche will effectively become another brand within the wider VW Group. |
Porsche's management team go into this Thursday's (23 July) extraordinary board meeting looking increasingly likely to ask the company's beleaguered chief executive Wendelin Wiedeking to relinquish his role. The company officially claims that he will stay on in his role but press speculation in Germany is intensifying that Wiedeking will be the scapegoat for Porsche's failed attempt to take over Volkswagen (VW) that has saddled the company with 10 billion euro in debt. Indeed, a report in Bild today claimed that Porsche Automobil Holding SE actually now has combined debts of 14 billion euro (US$19.75 billion) as a result of its bid to take control of VW. Despite the fact that Porsche now has a majority stake in VW of 50.76%, it still does not have full managerial control over the company as a result of the continuing presence of the VW Law, which allows the State of Lower Saxony to veto major corporate decisions influencing jobs and production locations, despite only having a 20.1% stake. As a result of the immense debt, and the collapse of the global capital markets, Porsche is having to examine all options available to it in terms of refinancing, with both the Qatar Investment Authority (QIA) and VW itself making offers to buy an equity stake in the company. It was previously reported that VW had an offer on the table for a 49.9% stake in Porsche (see Germany: 30 June 2009: Porsche Rejects Offer for 49.9% of Company from VW; Qatar Offer Submitted) but a report in Der Spiegel claimed on Saturday (18 July) that VW has offered to buy the entire company for around 8 billion euro. The magazine claimed that the Porsche and Piëch families who control Porsche Automobil Holding SE have agreed the deal, which would be rubber-stamped at the extraordinary meeting of the supervisory board. The deal would then be completed in two stages with VW initially purchasing the previously agreed 49.9% stake, and the full stake at a later date. The QIA has also reportedly tabled an offer for half of Porsche Automobil Holding SE and could still be a factor as the sovereign investment fund may yet take on some of Porsche's cash-settled options in VW shares.
Meanwhile, Thursday's meeting may also mark the end of Wendelin Wiedeking's extraordinary tenure as Porsche's chief executive. When he took over at the helm of the company in 1993 after initially joining as head of production in 1991, Porsche was struggling with a range of cars that were selling poorly and which cost too much to build, such as the 993-series 911 model and the front-engined 968 coupé. Inspired by Toyota's production techniques, Wiedeking introduced a new corporate plan to transform the efficiency and cost base of the company's production lines, while he formulated a strategy to manufacture two models, the Boxster and the 996-series 911, with a large amount of parts commonality, effectively developing two models for much nearer the price of one. Wiedeking, along with the company's chief financial officer Holger Härter, have been largely responsible for the VW takeover strategy and must ultimately shoulder the blame for its failure and Porsche's current debt level, despite the close backing of Porsche's largest individual shareholder Wolfgang Porsche. His cousin and Porsche's second largest shareholder Ferdinand Piëch has opposed Wiedeking's VW takeover strategy from the start and looks likely to try to engineer his departure. He has been responsible for pushing the plan for VW to acquire a cross holding in Porsche and has been vocal in his criticism of Wiedeking. It appears that many of the press stories that Wiedeking is poised to leave the company have been placed by Piëch allies, but crucially Wolfgang Porsche has done little to dampen the speculation.
Outlook and Implications
The chances of Wendelin Wiedeking managing to retain executive control of Porsche appear to be becoming increasingly slim as the company desperately tries to shore up its cash position. It is highly likely that the rival factions in the Porsche and Piëch families have already agreed the framework of a settlement in advance of Thursday's extraordinary board meeting, and it is highly likely that an agreement on Wiedeking's future could be part of this deal. Wiedeking himself continues to display a bullish public face, telling the Financial Times (FT) at Audi's centenary celebrations over the weekend that, "I have a concept that can stabilise the company," adding that he was "not wounded but robust and battle-tried". However, it was also reported that he has already been in negotiation over a settlement if he does leave the company as his current contract runs until 2012. The cost of this settlement will also be a factor in the decision concerning his future as a Sunday Times report over the weekend claimed that he was entitled to a figure of 99.6 million euro.
In terms of the outlook for the future structure of the company it may be that a joint solution between VW acquiring Porsche and QIA taking up some of Porsche's VW share options may be the most agreeable. The 8 billion euro that it is reported VW will pay for Porsche may not cover all of the company's debt, but the majority of the figure will be paid off, and it will be easier for VW to manage the remaining Porsche debt as part of its overall business structure than it would be for Porsche to continue to struggle on its own. Last week it was reported that the Porsche and Piëch families were looking at a compromise deal that could include a sale of half of Porsche's sports car business to VW for about 4 billion euro, a capital injection into Porsche Holding, and the sale of a 20% package of VW share options to QIA. This could still form the basis of the agreement although the latest reports indicate that VW may take a 100% stake in Porsche, leaving the VW share options to be acquired by QIA (see Germany: 16 July 2009: VW and Qatar Could Both Be Part of Porsche Debt Solution as Agreement Nears). However, any perception that Porsche's independence and autonomy is being undermined are likely to bring its own problems. There were also reports over the weekend that the Porsche workers council and the IG Metall plan to shut down production in plants in Zuffenhausen and Weissach in protest over the uncertainty surrounding the company's future.