Volkswagen AG (VOW3), Europe’s largest carmaker, is closing in on a deal to purchase the remaining 50.1 percent stake in Porsche SE’s automotive business that it does not already own, people familiar with the matter said.
Approval from German tax authorities is one of the hurdles to an agreement, which VW and Porsche (PAH3) are still negotiating, the people said, declining to be identified discussing private talks. VW may announce the plan within the next two weeks, the people said. VW (VOW3) is considering setting up an umbrella company to purchase the stake, according to one of the people.
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. VW’s main alternative to the original merger agreement has been to exercise options to acquire the remaining stake in Porsche’s automaking business for 3.9 billion euros ($5.2 billion), leaving Porsche as the holding company for the 50.7 percent of Volkswagen’s (VOW3) common stock that it owns.
The plan currently under consideration would allow VW to fully integrate Porsche (PAH3)’s carmaking business, of which it already owns 49.9 percent, while leaving the listed Porsche holding company to take legal responsibility for the outcome of the lawsuits. VW’s supervisory board met today and discussed the possible agreement, one of the people said.
“For VW, this would be a good deal,” said Arndt Ellinghorst, a London-based Credit Suisse analyst, who has an “outperform” rating on both carmakers. “Integrating the operating business would help them work closer together. For Porsche shareholders, they still have the legal risk.”
Porsche rose 1.52 euros, or 3.1 percent, to 50.07 euros in Frankfurt trading today. The stock has gained 21 percent this year, valuing the sports-car maker at 15.3 billion euros. Wolfsburg, Germany-based VW fell 0.7 percent to 138.35 euros.
“VW is working on creating an integrated automobile company with Porsche under commercially sensible conditions and as quickly as possible,” said Marco Dalan, a VW spokesman, declining further comment. Wolfgang Glabus, a Porsche spokesman in Stuttgart, said the company is continuing to work toward an agreement.
VW cannot exercise the options until Nov. 15, 2012, when they would trigger a tax bill of an estimated 1 billion euros, overwhelming 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.
The world’s second-largest carmaker after General Motors Co. will avoid having to pay the taxes if it completes the purchase before 2014 by setting up the holding company to temporarily take control of the stake, German magazine Der Spiegel reported last month, citing unidentified VW managers.
Volkswagen has said that the combination with Porsche (PAH3) 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 (PAH3) does in a year.
The two companies had sought 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.
The two companies have worked closely with one another since the attempted takeover of VW. Martin Winterkorn serves as the chief executive officer for VW and Porsche, while Hans Dieter Poetsch is the chief financial officer for both.
Winterkorn is seeking to integrate Porsche’s lucrative manufacturing operation, which builds the 911 sports car and Cayenne sport-utility vehicle, into VW to bolster his goal of surpassing GM. The VW group, which also owns the Skoda and Seat brands, delivered a record 8.27 million vehicles last year.
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.
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