VW-Porsche merger
October 21, 2010
Legal battles with hedge funds in the United States and Germany as well as a possible billion-euro tax bill in Germany could delay a merger between luxury sports-car maker Porsche and Europe's biggest auto concern, Volkswagen, by up to the three years, Wolfsburg-based VW announced this week.
The CEO of both Volkswagen and Porsche Holding, Martin Winterkorn, said that the planned merger for next year must first resolve legal questions around Porsche's failed takeover bid for VW and a resolution of discussions with German tax authorities over a multi-billion-euro tax that could be levied on the merger.
Porsche is being sued by 35 hedge funds in the US, who claim they took a financial hit due to market manipulation by Porsche when the company tried, and failed, to take over VW. The plaintiffs, US based short-sellers of VW stock, claim the sports-car maker's secret cornering of the market in VW shares caused them to lose more then $1 billion.
Several German investors have also threatened to sue, but have not done so yet.
Volkswagen has said that a US Supreme Court ruling this year limited foreign investors' ability to sue companies based abroad in American courts, which will help it fight the pending lawsuits.
"We consider the US complaints to be ineligible and unfounded," said Winterkorn, who continues to insist that Porsche will eventually become part of the VW family of brands. "Let me be quite clear about this: the integrated automotive group will happen."
The earliest the case could be dismissed is January, or it might take years to be settled.
Tax question
VW is also waiting for a decision by German tax officials on the tax-exempt status of profits from Porsche's options transactions. Currently, legal requirements around Porsche's structure would result in higher levels of taxation if VW and the Stuttgart-based company were to merge before the end of 2014.
If the companies delay the tie-up until early 2015, it would be tax free.
This new development is but the latest scene in a Porsche-VW merger drama that has dragged on for years, with more than its share of twists, turns and reversals of fortune. Porsche has tried to take over the much larger VW by securing stock through options trading, but failed in its bid, while watching its debt triple to more than 10 billion euros.
VW then agreed last year to incorporate Porsche into its family of brands, which includes Audi, Seat, Skoda and Lamborghini.
Volkswagen bought half of Porsche's sports-car business late last year for 3.9 billion euros ($5.4 billion). VW has said it wants to acquire the rest of Porsche in 2011.
New man at the helm
While VW and Porsche continue down the rather pothole-marked road toward a union, they are hoping a new man at the head of Porsche can avoid any more unforeseen obstacles.
Matthias Mueller, 57, got behind the wheel at Porsche at the beginning of this month, taking over from Michael Macht, who took a position on the VW management board, where he is now in charge of group production.
Mueller, VW's top car-model strategist, is expected to spread the success he had at VW's Audi unit to Porsche. Analysts say he has the know-how to do it, as well as the support. Mueller is considered close to VW chief Winterkorn and still enjoys strong support at Porsche headquarters in Stuttgart.
"He fits in here. I especially like the fact that he's not all talk. He gets things done," said Uwe Hueck, the head of Porsche's works council.
Independence
Mueller has insisted he is not coming to Stuttgart to simply do the bidding of executives in Wolfsburg, where VW is based. While Wolfsburg will be involved in discussions, he said Porsche will not lose its autonomy.
"If we take an active role in running this company, Wolfsburg will basically leave us alone. But if we are passive and just wait for things to happen, they're going to take control," Mueller said at the Paris Auto Salon last week.
"But that's not what they want and not why I am here. I think they chose me for this position because they believe I can be an active element and work with my colleagues to make things happen."
Although Mueller insists that Porsche will largely call its own shots, automobile expert Willi Diez says VW will want to have its say. Mueller's close ties with Volkswagen will make it easier for him to integrate Porsche into the group of VW brands.
"I think it's certainly understandable that VW wants to strengthen its influence at Porsche. They naturally want to have someone at the top that enjoys the trust of the VW board. Also, that he runs things there in a way that Volkswagen thinks is right," he said.
A 'good move'
Mueller's resume, which includes his time as the head of Audi's product management and new model development, makes him well suited for the top job at Porsche, according to Juergen Pieper, an automotive expert at the Metzler Bank.
"I think this is a good move for Porsche," he said. "I don't know Mr. Mueller personally, but I have heard from reliable sources that he is a very strong motivator, knows his cars and that he's made a lot of positive things happen, such as at Audi where his years there were very good ones.
Volkswagen aims to surpass auto giant Toyota in deliveries and profitability by 2018. Its integration of Porsche is part of that plan. Porsche, for its part, wants to expand its own line-up to double annual sales in the mid-term to 150,000 cars and sports utility vehicles.
Author: Kyle James and Alfred Schmitt
Editor: Sam Edmonds