Porsche buys 20% of VW.

Porsche Plans to Acquire Stake in VW By GEIR MOULSON, Associated Press WriterSun Sep 25, 2:07 PM ET Luxury sports car maker Porsche AG said Sunday it plans to acquire a stake of about 20 percent in Volkswagen AG, a move aimed at strengthening ties between the automakers and preventing a future hostile takeover of Volkswagen. Porsche said Volkswagen had become "a significant supplier for about 30 percent of our sales volume," as well as "an important partner in development." The two companies worked together to develop Porsche's Cayenne sport utility vehicle and Volkswagen's Touareg. They recently announced that they, along with Audi AG, were forming an alliance to develop hybrid engines. "With this engagement, we want to secure our business relations with VW and also safeguard in the long term a significant part of our future planning," Porsche chief executive Wendelin Wiedeking said in a statement. Stuttgart-based Porsche said it hoped the investment would enable it to head off any future hostile takeover of Volkswagen by investors "who do not have the long-term interests of VW as their aim." That scenario could arise if the European Court of Justice rules against a German law that effectively protects the company, Europe's largest automaker, from such a takeover. "Our planned investment is the strategic answer to this risk," Wiedeking said. Porsche said it was in contact with Volkswagen's management. "This 'German solution' that we are seeking is a significant precondition for the stable development of Volkswagen AG" and for the two companies' future cooperation, he said. Porsche said it was in contact with Volkswagen's management and did not plan to take over the company. Volkswagen welcomed Porsche's move, which it said supported its "independent business policy." "A stable shareholder structure is very important" in the long term, it said. The European Commission took Germany to court last year over the VW law. It has long argued that the decades-old law goes against the grain of the 25-nation bloc's single market principles, although German politicians claim it helps ensure stability at the company. The Commission objects to provisions of the 1960 law privatizing Volkswagen that cap a shareholder's voting rights at 20 percent, regardless of the number of shares held, and requires a majority of 80 percent for "important decisions." The state of Lower Saxony, where VW's Wolfsburg headquarters is situated, is currently the biggest shareholder, with a stake of 18.2 percent. A 20 percent stake would currently cost Porsche more than $3.6 billion. Porsche said it could finance the purchase with "available liquidity," but did not elaborate. Porsche said its investment would not reach the 30 percent threshold that, under German law, would require it to make a public takeover offer for Volkswagen. Volkswagen shares rose late last week amid rumors that a large investor was building up a stake in the company. On Friday, they closed up 3.4 percent at $62.49. Germany's biggest industrial union, IG Metall, welcomed Porsche's move to protect Volkswagen. "This is good for the company and good for Germany as an industrial location," union spokesman Georgios Arwanitidis told the daily Frankfurter Rundschau.

What goes around comes around!

Hence the new Panarama!

I assume this is a defensive move directly linked to ongoing development and production of the Cayenne and possibly Panamera. PAG perhaps "wins" if VW slogs along and ultimately restructures, resulting in an increasing share price and value of PAG's stake. Or if the company is taken over they will have some leverage with the acquirer to structure transitional supply and cooperation arrangements moving forward. In such a scenario they will probably turn a profit on their investment as the acquirer will pay a premium to gain control of VW. The opportunity cost of either outcome is the cost of capital employed by PAG, who seem to be cash rish at the moment, as well as perhaps increasing PAG attention to VW's problems (similar to DB's nursing of Chrysler causing DB to take their eyes off the DB ball). The only catastrophic outcome would be bankruptcy where share equity would be likely worthless, Germany AG unlikely to allow this to happen given current levels of unemployment etc. From a pure business opportunistic standpoint I somewhat admire the move but it has been greeted with skepticism by the investment community. My concen as a fan of Porsches (drive '04 996) is that the company is losing focus with its diversification and that products will suffer. I have assumed that PAG's dependence on VW does not relate to the sports cars? Please correct me if I am wrong.

After doing some more reading, Porsche was concerned that someone was going to buy VW and they would loose their major supplier/development partner. Their hand was forced by the german Gov't, that changed corporate ownership rules in Germany. From what I can gather, Porsche does very little on its own in the terms of development. Nothing makes this more clear than Porsches decison to use the same CF fabrication company for the Carrera GT, used for the Ferrari Enzo. Further, it has joined up with Toyota (I think) to develope its hybrid. JMO

It was reported that they had talks w Toyota. But the latest reports had them using the Audi co-developed hybred tech.. While Porche has always been an outsourcing *****, they do try to engineer performance characteristics in other's products. So you do get some value from the crest, but boy it is expensive for their effort.