Global Insight Perspective | |
Significance | Porsche's supervisory board has authorised a move for the company to increase its shareholding in VW from the current level of 31% to a majority stake of 51% |
Implications | Porsche's announcement will be unpopular with the head of VW's worker's council Bernd Osterloh, who represents the interests of the company's workers on the VW board. Osterloh has recently described Porsche's takeover of VW as "hostile" and is fighting to retain the workers veto on strategic corporate decisions affecting the company, something that Porsche's CEO Wendelin Wiedeking wants to see abolished. |
Outlook | The decision of the Porsche board is the final element in the sports car manufacturer's plan to take full unopposed executive control of Germany's biggest volume carmaker. Porsche are expected to pay 10 billion euro (US$15.17 billion) for the extra 20% shareholding. |
Porsche Takes the Final Step Towards Full VW Takeover
The supervisory board of Porsche has taken the decision to increase the company's 31% share in Volkswagen (VW) to 51% according to a Reuters report, although Porsche's management team says there are no plans to merge the two companies. According to the report, the decision was taken by Porsche's senior management team at an extraordinary meeting on Monday (3 February). Porsche has said that the move will cost the company 10 billion euro (US$15.17 million) in order to complete the purchase of the extra 20% of VW that will give Porsche a majority stake in the company for the first time. Porsche Chief Executive Wendelin Wiedeking said, "Our aim is to create one of the strongest and most innovative automobile alliances in the world, which is able to measure up to the increased international competition."
Porsche had been expected to make a bid to gain majority control of VW following the decision last year by the European Supreme Court to annul German legislation that capped individual shareholder's voting rights. While this legislation existed it meant that even if Porsche became a majority shareholder in VW, it would not be able to exert full executive control over Germany's largest volume carmaker. However the European Union (EU)'s Supreme Court ruling opened the way for Porsche to take a majority stake in VW. Wiedeking and his fellow Porsche board members are waiting for the outcome of an ongoing battle in the cabinet of the German Chancellor Angela Merkel over how to amend the so-called "VW Law" that limits the voting rights of any single shareholder to just 20%. This battle is ongoing despite last year's EU Supreme Court Decision. However, the Porsche board's decision to proceed with acquiring the majority stake in VW is a sign of its confidence that the EU Court's decision will be fully ratified, and the limits to executive power by individual shareholders to be abolished.
However, even if this decision is confirmed there is still the issue of resistance from the VW workers council from what they see as Porsche's aggressive style. Last month the head of workers council Bernd Osterloh described the Porsche's interest in VW as a "hostile takeover" (see Germany: 27 February 2008: Porsche's Interest in VW Becoming "Hostile Takeover", Says VW Labour Leader). Osterloh made his comments at an employees' meeting at VW's Wolfsburg plant. Osterloh also said at the meeting that Wiedeking should not seek to influence the re-drafting of the "VW Law" in order to lessen the influence of the workers council. Porsche's decision to purchase a majority stake in VW will lead to increased tension between Porsche's management board and Osterloh and his colleagues. VW Chief Executive Officer (CEO) Martin Winterkorn voiced his concerns on this issue with comments made yesterday at the Geneva Motor Show. While welcoming Porsche's decision to increase its stake in VW, he also added that alliances that did not have the support of the labour force are doomed to fail. According to the Wall Street Journal Europe, Winterkorn said, "It can't be that two teams are on the warpath with each other."
The background to the deal has also seen a number of significant developments. The stake will be purchased by the holding company recently established by Porsche known as Porsche Automobil Holding SE, although the purchase does not require Porsche to make a full bid for VW as it made an offer at the legal minimum last year that few investors agreed to. It was also revealed at the Geneva Motor Show yesterday that former VW Chairman and Porsche AG shareholder, Ferdinand Piëch, who is widely regarded as the most powerful individual in the German motor industry because of his dynastic links to both the Porsche and VW empires, will step down from the Porsche supervisory board. He told journalists at the show that reasons were due to securities laws and organisational issues. He will be replaced by his brother Hans Michel Piëch.
Outlook and Implications
The decision by Porsche's supervisory board to purchase a majority stake in VW through the newly created holding company Porsche Automobil Holding SE is the endgame in the sports carmaker's plan to take full ownership and executive control of Germany largest volume carmaker. The only obstacle left in the way of Wendelin Wiedeking's strategy is the remaining uncertainty over how the German government will look to shape a revised VW Law, which has historically limited the executive influence of individual shareholders in VW. However, despite the fact that some ministers in the German cabinet are looking to circumvent the EU Supreme Court Ruling that the VW Law contradicts EU competition treaties, Porsche's move to purchase the majority stake in VW signifies the confidence that Wiedeking has that the limits on voting rights will be abolished. This will effectively leave Porsche with full executive control over VW. This will pave the way for VW to pursue an aggressive sales volume growth strategy, and allow VW to proceed with plans for a product platform rationalisation strategy. It will also see further synergies between Porsche, VW and the rest of the VW Group companies, including SEAT, Skoda, Audi, Bentley and Lamborghini. In the medium term the move raises a number of interesting questions about the future of the VW Group's premium product strategy. For example the Audi R8, which was launched last year, is the nearest direct competitor to Porsche's iconic 911, with the car receiving lavish praise for its dynamic excellence. If Porsche does manage to exert full executive control over VW, will the R8 programme survive? Likewise, what will the future hold for Lamborghini under Porsche ownership? However, if the VW Law is amended in its favour, the short-term concern for Porsche will be how to improve relations with VW's shop floor workers. This issue is certain to prove the biggest test of Porsche's ownership in the coming months.