VW to Pay $5.6 Billion for Rest of Porsche After Seven-Year Saga

By Chad Thomas and Dorothee Tschampa - Jul 5, 2012 5:53 AM GMT+0700

Volkswagen AG (VOW) agreed to buy the 50.1 percent stake in Porsche SE (PAH3)’s automotive business that it doesn’t already own for 4.46 billion euros ($5.6 billion), ending a seven-year takeover saga that divided two of Germany’s most powerful families.

VW was able to proceed with the transaction after reaching an agreement with German tax authorities, it said in an emailed statement late yesterday. The cash deal is based on an equity value of 3.88 billion euros and also includes what the Porsche holding company would have received in dividend payments and half of the forecast synergies from the combination.

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A customer browses Porsche 911 automobiles on display outside a dealership in Stuttgart, Germany. Photographer: Guenter Schiffmann/Bloomberg

The agreement means Wolfsburg, Germany-based Volkswagen can now fully fold the Porsche automaking business into its stable of brands, which range from Audi sedans to Ducati motorbikes. The two companies agreed to combine in 2009 after Stuttgart- based Porsche racked up more than 10 billion euros of debt in an unsuccessful attempt to take over Europe’s largest carmaker.

“We can now cooperate even more closely and jointly leverage new growth opportunities in the high-margin premium segment,” VW Chief Executive Officer Martin Winterkorn said in an e-mailed statement. “Combining their operating business will make Volkswagen and Porsche even stronger -- both financially and strategically -- going forward.”

VW said it expects Porsche’s automaking business to be fully consolidated in its accounts from Aug. 1. Porsche’s earnings contribution for this year will be mainly offset by the purchase price, VW said. By revaluing its existing shares in Porsche, VW expects to book a non-cash gain of more than 9 billion euros and predicts a liquidity drain on its own automaking division of about 7 billion euros.

U.S. Lawsuits

The two companies scrapped the plan for a full merger last year with the Porsche holding company, which is controlled by the Piech-Porsche family and still owns 50.7 percent of VW’s common stock, because of lawsuits against Porsche in the U.S. and Germany over the failed VW takeover.

The deal announced yesterday allows VW to purchase Porsche’s automotive business without having to pay the taxes associated with exercising a put-call option it had to buy the stake. The agreement will result in 320 million euros in additional synergies due to the earlier completion.

Botched Takeover

“I am not surprised by the deal as such, only by the timing,” said Albrecht Denninghoff, a Frankfurt-based analyst at Silvia Quandt Research. “Both parties have wanted the integration for a long time.”

Volkswagen shares have climbed 11 percent this year, valuing the carmaker at 57.2 billion euros. Shares in the Porsche SE holding company are up 1.5 percent in 2012, giving the company a market value of 12.8 billion euros.

Porsche’s attempt starting in 2005 to take over Volkswagen, which makes more cars in a week than the sports-car maker does in a year, split the controlling family. Ferdinand Piech, VW’s chairman, crossed his cousin Wolfgang Porsche to thwart the plan, which ultimately fell apart after Porsche’s debt rose in the midst of the financial crisis.

Piech, 75, the former VW CEO who was elected to a third term as chairman in April, has since solidified control of Volkswagen. His wife, Ursula, took a seat on the company’s supervisory board earlier this year. In April, VW agreed to acquire Italian motorcycle maker Ducati, fulfilling Piech’s vision of a company with a range spanning two-wheelers to 50-ton trucks. VW also controls truck makers MAN SE and Scania AB.

“To have the Porsche clan as owners and the anchor shareholder is good for Volkswagen and for Germany,” said Christoph Stuermer, an IHS Automotive in Frankfurt. “This has changed the cultural heart of the company. Volkswagen has become substantially stronger and long-term oriented.”

To contact the reporters on this story: Chad Thomas in Berlin cthomas16@bloomberg.net Dorothee Tschampa in Frankfurt at dtschampa@bloomberg.net.

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net