Originally Posted by IHT
Porsche cites need for change at Volkswagen
By Mark Landler
Published: December 7, 2006
STUTTGART: For investors curious about Volkswagen, the first stop these days
should not be Wolfsburg, the northern German city where the auto giant is
based, but Stuttgart, the southern metropolis that is home to a smaller, more
elite maker of sports cars, Porsche.
Financial markets here are rife with speculation that Porsche intends to take
over Volkswagen. It owns 27.4 percent of Volkswagen's shares, making it the
largest investor, and it plans to buy more. At its annual news conference here
Wednesday, Porsche acted as if it were already calling the shots.
"We believe that if anybody can stand up to Toyota, it is Volkswagen," the
chairman of Porsche, Wendelin Wiedeking, said at a meeting that was supposed to
be about its performance. "There will be some changes. There have to be some
changes, no doubt."
A week after General Motors fended off a challenge from a muscular,
change-minded shareholder, Kirk Kerkorian, Porsche served notice that it
intended to tighten its grip on Volkswagen. It will use its $5.3 billion stake
to shake up the biggest, but recently most stalled, carmaker in Europe.
While Wiedeking declined to be specific about what changes he had in mind, he
said he expected to get involved in all aspects of Volkswagen's business. And
he said Porsche's investment entitled it to three or four seats on VW's
supervisory board. It has two.
"We could be passive board members or active board members," Wiedeking said
during a subsequent interview. "Our intention is to be very, very active
members of the supervisory board."
In German business circles, Porsche's creeping takeover has become a riveting
drama. Wiedeking calls it a David and Goliath tale - somewhat implausibly,
given Volkswagen's frailties.
Certainly, it brings together two starkly different brands - the utilitarian
"people's car" and a rich man's toy - that nevertheless share a common history.
Ferdinand Porsche, the patriarch of the sports car dynasty, designed the
Volkswagen Beetle for Hitler.
It also has political and legal ramifications, since Volkswagen is now
protected from a full takeover by a German law that bars any investor from
holding more than 20 percent of the shareholder vote.
Wiedeking said, however, that he expected a European court to strike down the
law.
This would strengthen Porsche's hand relative to Volkswagen's other principal
shareholder, the state of Lower Saxony, which owns about 20 percent and has
resisted Porsche's growing influence.
The European Court of Justice is scheduled to consider a challenge to the law
Tuesday, and while it is not likely to act then, legal experts expect a ruling
within the next year.
If the law is struck down, analysts predict, Porsche will move quickly to buy
Volkswagen. Under German law, a company that owns more than 30 percent of
another company's shares must make an offer. Last month, Porsche said it would
ask its shareholders for authority to issue as many as 8.75 million new shares,
which it could use to finance a major acquisition.
Wiedeking said a takeover was not in Porsche's current plans, but he did not
rule it out in the future. "Like in a game of chess, we do not know the moves
the other players intend to make," he said. "And to be taken seriously by all
the other players, we need to have an appropriate level of approved capital."
Porsche has the confidence that comes from being the world's most profitable
major carmaker. Its sales grew strongly again in its latest financial year,
which ended July 31, powered by its perennially popular 911 model.
Pretax profit nearly doubled, to €2.1 billion, or $2.8 billion, because of its
newly added share of Volkswagen's profit, as well as profit from stock- hedging
transactions when it bought VW shares. Yet there are signs that Porsche may
have peaked. The company warned that sales growth would slow in the next few
years, amid struggles in the fiercely competitive American market and a lack of
new models.
Porsche said its sales would not spike again until 2009, when it will roll out
the Panamera, a four-door sports coupe that will be its first new model since
the Cayenne sport utility vehicle in 2002.
But the Cayenne is also sputtering. Unit sales fell 29.2 percent in the first
four months of the new financial year, reflecting both its age and the reduced
appetite for SUVs in the United States.
What most concerns analysts is a suspicion that Porsche's interest in
Volkswagen is driven by more than economic logic. Ferdinand Piëch, chairman of
VW's board, is regarded as the driving force behind a merger.
As the grandson of Ferdinand Porsche, analysts say, Piëch has personal reasons
to see the two carmakers reunited.
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