Posted by: David Kiley on July 13, 2009
Shares of Porsche SE were on the rise on Monday, closing up more than 9%, after German new magazine Der Spiegel reported that Qatar had offered $9.7 billion for a stake in the German automaker that is reeling under a huge debt load and facing possible absorption by Volkswagen AG.
Under terms of the deal reported, but not yet confirmed, The Qatar Investment Authority would buy a bit more than 25% of Porsche for $9.7 billion. Porsche’s market cap is a bit more than 8 billion euros. Qatar would also gain Porsche’s options on shares in Volkswagen, which would total about a 20%-25% stake if exercised.
The significance of the pending deal with Qatar is that it will give the sovereign wealth fund a big block of voting shares in Porsche. Up to now, the voting shares have been controlled by the Porsche and Piech families.
But Porsche has run into severe balance sheet problems after a derivative scheme hatched by Porsche went haywire last Fall when the global credit markets collapsed. The scheme was a financial device employed by Porsche to enable it to acquire most of Volkswagen’s shares not owned by the State of Lower Saxony. At present, Porsche owns 51% of VW, but the automaker was out to acquire 75%.
The scheme tripled Porsche’s debt in the six months ending in January to above 12 billion euros. Some analysts have speculated that the debt amount is even higher.
Volkswagen, Europe’s biggest carmaker, and Porsche said in May that they were in talks on a possible combination into a single manufacturer of 10 automotive brands.
The Piech and Porsche families who control the sports-car maker have scheduled a supervisory board meeting for July 23 to discuss the bids by the Qatari sovereign-wealth fund and Volkswagen.
The dealings between Porsche and VW have played out in Germany like a soap opera. At the center of the storm is the clan rivalry between the Porsche and Piech families. Wolfgang Porsche, chairman of Porsche’s supervisory board,is the grandson of Ferdinand Porsche, the company’s founder. Ferdinand Piech, chairman of VW’s supervisory board is also F. Porsche’s grandson.
Piech is an interesting situation that would hardly be possible in the U.S. with its stricter corporate governance rules. Piech, because of the voting shares the Piech’s control, could block the investment by Qatar in Porsche. If he does so, VW would almost certainly have to absorb Porsche. But if VW does so, it also takes on Porsche’s huge debt load. He may want to block an outsider from having such a huge block of voting shares in his family business. But he would also be reluctant to saddle VW with more than $10 billion of new debt, and allow Qatar to acquire more than 20% of VW.