Porsche and VW merge as auto consolidation continues

Volkswagen and Porsche have finally hammered out a merger plan after some bitter infighting. My understanding is that the new company will carry the Porsche name and trade under its ticker symbol. In addition, the company plans to raise more capital to pay off debt before the merger goes through. Why Porsche took on so much debt is beyond me.  Just this past March they had record earnings due to some hedges they took out on their purchases of shares in VW.

Reuters reported then:

Porsche SE landed a 6.8 billion euro ($8.99 billion) windfall from its share options in Volkswagen during the first half, lifting its pretax profit to more than twice its revenue.

The European automotive group said on Tuesday that earnings before tax rose to 7.3 billion euros in the six months to end-January, easily surpassing the average estimate of 3.65 billion euros from a Reuters poll of 11 analysts.

Volkswagen’s pro-rata earnings contribution to Porsche fell to 444 million euros from 484 million euros a year ago.

Late in October, news that Porsche had secured access to about 74 percent of VW ordinary shares — draining the company of almost its entire freefloat — led the stock to quintuple within 48 hours to 1,000 euros per share, briefly making the Wolfsburg carmaker the most valuable company in the world.

Porsche then sold a small package of VW cash-settled call options to relieve buying pressure, sparking outcries from investors such as Deutsche Bank’s German retail fund business DWS that the carmaker had manipulated the market and broken securities trading laws.

Although the German securities regulator Bafin began an official investigation, no findings have been published, and Porsche has repeatedly protested its innocence. Porsche, which last reported early in January that it had increased its direct stake in VW votes to over 50 percent, encountered problems last week rolling over a 10 billion euro credit line and had to increase its pool of lenders to clinch enough commitments.

The merger is definitely a consolidation play as it unites 10 brands under one roof including the main brands of Porsche, Audi, and Volkswagen.  Porsche and Volkswagen already share platforms like the Touareg/Cayenne and parts in order to reduce production costs.  However, with the two now one company you can bet their will be more cost savings.  I have yet to hear any talk of headcount reductions given that VW and Porsche operate in very different markets.  Obviously, as Lower Saxony has a blocking minority interest in VW, and given we are in an election year in Germany, major cuts are not likely.

See the BBC video below for more details.

4 Comments
  1. Thomas says

    Quote: “My understanding is that the new company will carry the Porsche name and trade under its ticker symbol”

    Was that reported anywhere?

    I find it hard to imagine (which of course doesn’t mean that it’s wrong).

  2. Thomas says

    Quote: “Why Porsche took on so much debt is beyond me”

    That bit is rather simple to explain: They wanted to take over VW, and the money had to come from somewhere.

    1. Edward Harrison says

      exactly. it shows they really wanted VW badly and they overstretched themselves in a reckless way. BTW, I could see the name being Porsche Volkswagen, but I have heard they would use Porsche as the legal entity to consummate the deal.

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