Calm before storm as stage is set for Porsche v VW

AFTER FOUR years of boardroom battles, family feuds and shareholder shenanigans, the scene is set for tomorrow’s finale for ultimate…

AFTER FOUR years of boardroom battles, family feuds and shareholder shenanigans, the scene is set for tomorrow's finale for ultimate control at Porsche and Volkswagen, writes DEREK SCALLYin Berlin

What began in 2005 as a plan for a friendly union of two iconic German car companies long ago soured into a hostile takeover, of David and Goliath proportions.

Any agreement reached today will end Germany’s greatest corporate battle of recent times, but in a way the Stuttgart sports-car company cannot have envisioned when it made its opening move on VW.

Tomorrow, the respective boards of Porsche and Volkswagen will meet to review a “Grundlagenvereinbarung” or basic agreement – in effect a truce on terms written by VW management.

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Under this deal, the privately-owned Porsche would become the 10th brand in the Volkswagen portfolio, joining other brands like Audi, Bugatti and Lamborghini. In exchange, the Porsche family gets 49 per cent control of the merged company, sharing the boardroom table with the state of Lower Saxony, where VW is based.

More importantly, the family will get the €8 billion it needs to pay off the debt it clocked up buying 51 per cent of VW’s increasingly expensive shares.

It was this crippling debt – and the increasing nervousness of banks to service it – that proved Porsche’s undoing. In a deteriorating economic climate, the banks were nervous, too, about the company’s ability to complete the deal by picking up the remaining VW shares on which it had secured options.

These share options, worth around €2 billion, are likely to be picked up by the emirate of Qatar, another new face on the board of the new car group.

The Wolfsburg-based Volkswagen is optimistic of a deal because, as it sees it, Porsche has found itself in a financial Zugwang that has forced them to make a move.

The VW plan is to first take a 49.9 per cent stake in Porsche and buy the rest at a later date. A spokesman for Porsche was more circumspect yesterday, saying it might take longer than expected to reach a deal.

“We do not know what the family will decide. We are going with the idea that there could be a decision. But we cannot expect one,” said the spokesman.

Even now, the big winner of the Porsche-VW soap opera is already clear: VW chairman Ferdinand Piech. For decades, the grandson of Porsche founder and VW Beetle designer Ferdinand Porsche has dreamed of uniting the two companies.

A decade ago, the 72-year-old trained engineer, then VW chief executive, introduced the first technical co-operation agreement between the companies. Now a full merger is in his grasp. Porsche chief executive Wendelin Wiedeking is likely to be the first victim of the deal.

After rescuing the company from the brink of disaster in 1993, he masterminded the complex takeover that has now cost the Porsche family billions and the company its independence.

Wiedeking continues to claim his future at the company is secure, saying he “will not accept that Porsche is taken for a ride in the end”.

But several well-placed sources have confirmed that, once the deal is done, Wiedeking will immediately be replaced by Porsche production chief Michael Macht. All that remains to be agreed is Wiedeking’s multi-million euro severance package.

There are other financial details to be worked out before the deal goes through: Volkwagen accountants and lawyers are trying to ascertain how best to acquire Porsche without having to face tax charges “in the region of a high three-digit million euro sum”, according to a company source.

The biggest stumbling block to an agreement tomorrow is Uwe Hück, the powerful union leader at Porsche. For years in interviews the bullish judo champion had warned Wolfsburg unions to get used to the idea of a Porsche takeover, even if it meant worse employment terms for VW workers.

Now the shoe is on the other foot and, amid claims of concern about Piech’s autocratic management style, Hück has vowed to block the deal.

“At the graveside of [former boss] Ferry Porsche 11 years ago, I promised to fight to keep Porsche, Porsche. I aim to keep that promise,” said Hück, who claims that the paperwork is not ready to allow tomorrow’s board meeting to agree to a VW takeover. Asked by a German newspaper if he was prepared to block the deal with strikes, he said: “We have a battle-ready workforce. What we do will be a surprise.”

The last round of the Porsche/VW battle has distracted attention from the struggle over another Germany car company: Opel.

After General Motors reached a preliminary agreement to sell its European subsidiary to Canadian car parts company Magna, today is the deadline for final offers.

Alongside the Magna proposal, financed by Russian backers, two other companies have thrown their hats into the ring – China’s BAIC car company and investment house RJH.

A spokesman for Germany’s economics minister says that Magna “still has an edge” in its talks with GM, but that RHJ is “catching up in the process”.

Compare and contrast

VOLKSWAGEN

Cars:6.35 million

Turnover:€113.8 billion

Net Profit:€4.69 billion

Workers:370,000

Brands:9

Plants:61

Base:Wolfsburg

PORSCHE

Production:105,000

Turnover:€7.47 billion

Net profit:€6.39 billion

Employees:12,200

Brands:1

Plants:2

Base:Stuttgart