Jul
About Porsche and Volkswagen
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Europe’s biggest carmaker, Volkswagen, will soon takeover Porsche after the Porsche CEO, Wendelin Wiedeking, resigned from his position on Thursday. The takeover deal is supposed to be worth $11.3 Billion.
The surprising aspect in this deal is that for the past few years, it was Porsche who was steadily and strongly increasing its efforts to takeover Volkswagen even with Volkswagen being 16 times the size of Porsche.
Before the current mess that Porsche has ended in, the outgoing CEO, Wiedeking, was responsible for turning around Porsche’s fortunes and making it one of the most profitable automobile companies in the world. Wiedeking joined Porsche in 1983 and became its CEO in 1993. At that time Porsche was nearly bankrupt. However, Wiedeking through his business skills made the company immensely profitable. His aim was to merge VW and Porsche into a single giant automaker.
Slowly Wendelin Wiedeking and Porsche CFO Holger Härter started buying up VW stake. Around mid 2007, Porsche raised its stake in Volkswagen past 30%. According to the German law this necessitated that Porsche submit a bid to buy Volkswagen. The offer made was a bare minimum then and was rejected by Volkswagen anyway.
About a year later, Porsche raised its stake in Volkswagen from 31 percent to more than 50 percent. All the time the 
Porsche CEO and the CFO used sophisticated options-trading strategy. By late 2008, Porsche secretly raised its stake in VW to 75%. The hedge funds were however betting that the prize of VW shares would go down. When it was announced that the amount of VW shares bought by Porsche was as high as almost 75% of the total, the VW shares rallied to huge values, rising by up to 400%. For a brief period VW became the biggest company in the world by market value. Porsche ended up making huge profits while those who bet on the shares going down made immense losses.
However in the end, Porsche also amassed a debt of €10 billion ($14 billion) in its efforts to buy out Volkswagen. Under normal circumstances, Porsche would have no trouble financing that debt with all the profits it had made in hedge funds. However the credit crisis ruined Mr. Wiedeking’s plans. With the German government refusing to help, Wiedeking also tried to make a deal with a government owned company from Qatar for the much needed cash, but failed to reach any deal.
In this scene of crisis, Ferdinand Piëch, the head of Volkswagen, used the opportunity to turn the tables on Porsche and acquire the company. Pietch also wanted Mr. Wiedeking and Mr. Härter out before a final deal was settled. According to him the men were responsible for Porsche’s present financial position. VW’s labor unions also did not want the Porsche management, with Wiedeking being known as a pretty strict manager.
Now that Mr. Wiedking is out, Volkswagen will purchase a 49.9 percent stake in Porsche and at a later date acquire the rest. The Volkswagen group will now have 10 brands under it — Volkswagen, Lamborghini, Skoda, Bentley, Bugatti, Audi, Scania, Seat and Volkswagen Commercial Vehicles. With the merger, VW will raise the necessary money to pay off all the debts that Porsche had incurred over the past few years in its takeover hunt, but which ended with the hunter itself becoming the prey.
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8 Responses to “About Porsche and Volkswagen”
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very interesting as car/automobile indistries are struggling its a good sign
I don’t think the whole industry is struggling. Only mismanaged companies like GM and Chrysler are. Ford Motors just posted $2.3b profits.
Companies like Toyota are still profitable. So it’s not an issue of a struggling industry but struggling companies.
Interesting article Anup, and CONGRATS on your 10th post !!
a great article…never knew so much was happening in the automobile industry ….
Very nice article. I did not know the entire twist and the hunter becoming the prey is quite amazing. However I did not understand that why raising $10 B was difficult for Porsche? Couldn’t they just sell their stake in VW and get somewhere close to that figure? Plus isn’t owning 51% in a company basically means owning it?
Same questions as Shubham asked.
Sorry guys for the delay in response.
Porsche could have sold the VW stocks. But raising $10B through stocks would have required selling a considerable lot of those shares. And once Porsche had started selling its stocks, the stock prices would have definitely gone down, creating a problem for Porsche in selling the rest and raising the money.
About the 51% stocks in VW, though it did mean Porsche had taken over VW, however, it still did not give overall control of the company, managerial and otherwise to Porsche. VW still had its own independent management running the company. In order to get complete control Porsche needed a 75% stake. It was in this effort that ultimately Porsche ran huge debts.
This outcome serves Porsche right. I’m a VDUB head for life and couldn’t stand the thought of Porsche snaking it way into controlling VW just to plunder VW’s coffers. It a shame that the 78 year history of Porsche being independently owned is going to end but Mr. Wiedeking should have know better than underestimate the Mafia Don of the auto industry, Mr. Piech. Time and time again Ferdinand Piech has proven to be a powerful and clever CEO. His only major misjudgment was the VW Pheaton. Sad outcome for Porsche but as they say “if you mess with bull you get the horns”.