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For Volkswagen AG (VOW), what a difference a share makes.
By paying the purchase price of 4.46 billion euros ($5.58 billion) plus 1 VW share for the 50.1 percent stake in Porsche SE (PAH3)’s automotive business it doesn’t already own, the Wolfsburg, Germany-based carmaker is avoiding an additional tax bill of more than 900 million euros. The share payment allowed VW to classify the deal as a restructuring rather than a takeover, a tax-saving plan approved by German tax authorities.
The deal structure was in large part the brain child of Michael Schaden, a press-shy tax lawyer at Ernst & Young in Stuttgart, according to people familiar with the transaction. The Heidelberg-trained lawyer, who is also an approved attorney at law in New York, has been one of Porsche’s closest advisers for years, said the people, who asked not to be identified because they were not authorized to discuss it publicly.
The restructuring idea paved the way for VW to proceed with the transaction two years earlier than planned after reaching an agreement with German tax authorities, the carmaker said late Wednesday. The transaction also ends a seven-year takeover saga that divided two of the most powerful families in Germany.
The proposal takes advantage of the so-called Umwandlungssteuergesetz, or reorganization tax act, VW said in its statement. The idea was developed in conjunction with about half a dozen Porsche and VW law firms and accountants including Freshfields Bruckhaus Deringer LLP and Flick Gocke Schaumburg, according to German legal trade publication Juve Verlag.
VW will now pay “well over” 100 million euros in transaction taxes on this deal, Chief Financial Officer Hans Dieter Poetsch told reporters at a press conference yesterday at VW headquarters in Wolfsburg. If VW had completed a traditional takeover before August 2014, it would have resulted in at least 1 billion euros of taxes, Poetsch said in December 2010.
“This is actually great news for VW,” Credit Suisse analyst Arndt Ellinghorst wrote in a note to clients, estimating that the deal would increase the company’s earnings per share by 7 percent. VW is effectively acquiring Porsche at an enterprise value of about 11 billion euros, while the analyst estimates its enterprise value to be about twice that.
The restructuring maneuver, applauded by legal and banking advisers, has drawn the ire of some politicians.
“When global companies can save billions with such tax tricks, then every taxpayer has to feel like they’ve been had,” Rainer Bruederle, parliamentary leader of the Free Democratic Party, Chancellor Angela Merkel’s coalition partner, told German business newspaper Handelsblatt yesterday. “Many skilled workers can only dream of so much charity from the tax offices.”
Volkswagen cited the taxes it was set to pay and called Bruederle’s statement “irresponsible.”
“It’s populistic to talk of tax tricks and forbearance from the authorities,” Stephan Gruehsem, spokesman for VW, said in a statement. The idea of billions in evaded tax payments was “utterly unfounded,” he said.
Schaden didn’t immediately respond to an e-mail message and calls seeking comment.
The two companies had been working on a full-blown merger since 2009, when Porsche failed in its attempt to take over VW, which would have eliminated the holding company and given Porsche shareholders a direct interest in the larger carmaker. That goal was scrapped last September because of the lawsuits in the U.S. and Germany, claiming the carmaker secretly piled up VW shares.
VW and Porsche advisers have been working on ways to find a tax-beneficial structure to push forward with the merger since the September rejection, one of the people said.
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