Bloomberg News

Volkswagen Says Porsche Integration Discussions Ongoing

January 23, 2012

(Updates with Porsche comment in sixth paragraph.)

Jan. 22 (Bloomberg) -- Volkswagen AG is “still in the process” of deciding on a plan to combine with Porsche SE’s automotive business, Christine Ritz, a VW spokeswoman, said.

“Of course, all the parties are interested in achieving the goal of an integrated automotive group as soon as it makes economic sense to do so,” Ritz said in a telephone interview. “As soon as we have made a decision to achieve that goal, we will communicate that.”

Ritz declined to comment on a Der Spiegel report that Europe’s largest carmaker may complete the purchase this year of the 50.1 percent of Porsche’s automotive business that it does not already own.

VW has considered alternatives to a 2009 agreement, which called for a full merger by the end of 2011, after lawsuits against Porsche in the U.S. and Germany complicated the company’s valuation. To avoid further delays, Wolfsburg, Germany-based VW may drop the merger and instead buy Porsche’s carmaking business, two people with direct knowledge of the situation said in November. VW already owns 49.9 percent of Porsche’s auto unit.

VW will avoid having to pay more than 1 billion euros ($1.3 billion) in taxes if it completes the purchase before 2014 by setting up a holding company to temporarily take control of the stake, Spiegel reported today, citing unidentified VW managers. Volkswagen will take steps to ensure Porsche’s independence within the group to minimize opposition from labor leaders at Porsche, the magazine said.

Checking Alternatives

“As we said in September, we want to check alternatives and that process is ongoing,” Frank Gaube, a Porsche spokesman, said by telephone, declining to comment further.

Volkswagen has said that the combination with Porsche will boost profitability and save 700 million euros. VW, whose main luxury brands include Audi, Lamborghini and Bugatti, makes more vehicles in a week than Porsche does in a year.

The two companies had worked on a full-blown merger since 2009, when Porsche failed in a hostile attempt to take over VW, the sports-car maker’s biggest supplier. Porsche racked up more than 10 billion euros of debt as it purchased the majority of VW’s common shares.

Porsche Lawsuits

Short sellers of VW stock sued Porsche in the U.S., claiming it secretly piled up VW shares and later caused the investors to lose more than $1 billion. Claimants in Germany have also sought damages, while prosecutors in Stuttgart, where Porsche is based, are investigating suspicions that the sports- car maker didn’t adequately inform investors about its plan to take control of VW. Porsche has repeatedly denied all allegations of wrongdoing.

VW’s main alternative to the original merger agreement has been to exercise options to acquire the remaining 50.1 percent stake in Porsche’s automaking business for 3.9 billion euros, leaving Porsche as the holding company for the 50.7 percent of Volkswagen’s common stock that it owns.

VW cannot exercise the options until Nov. 15, 2012, when they would trigger a tax bill of an estimated 1 billion euros, overwhelming the potential savings from the deal. The taxes would shrink to zero if the carmaker waits until the second half of 2014 before exercising the options, it has said.

--Editors: Will Hadfield, Chad Thomas

To contact the reporter on this story: Chad Thomas in Berlin at cthomas16@bloomberg.net

To contact the editor responsible for this story: Chris Reiter at creiter2@bloomberg.net


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