Porsche Buys One-Fifth of Volkswagen

27 September 2005

Porsche, the legendary German sports car maker and the planet's most profitable auto manufacturer, is to take a 20% stake in Europe's largest motor company Volkswagen.

The move, which will part the Porsche family-controlled business from around €3.3 billion ($3.99bn; £2.24bn), came as a major surprise both to the financial and automobile markets. Observers in both sectors predict the deal will change the face of the German auto industry.

The move will protect VW from a hostile takeover, a possibility that last Friday accelerated into probability when reliable sources reported that Kirk Kerkorian, the Las Vegas-based corporate raider and America's nineteenth richest man, was negotiating to buy a large tranche of VW stock.

Kerkorian's elbowing onto the VW scene will have set alarm bells ringing in corporate Germany, where there are still livid scars in the wake of his intervention in the affairs of DaimlerChrysler in 2003.

However, the Porsche gambit has effectively put paid to any hopes the US predator might have had of gaining control of VW. Porsche, on the other hand, is adamant it has no further ambitions for the Wolfsburg-headquartered company, stating that "under no circumstances" will it progress to a full takeover of VW.

Says Porsche chief executive Wendelin Wiedeking: "This 'German solution' we are seeking is an essential prerequisite for the stable development of Volkswagen".

The two companies already work closely together with VW playing an important role in the production of Porsche's Cayenne model. The duo are also cooperating on the development of petrol-electric hybrid engines.

It is a measure of Porsche's financial fluidity that it is funding the entire transaction from its own cash resources. VW's second largest shareholder, the state of Saxony which owns 18% of the company, welcomed the deal.

Comments Jürgen Pieper, a local haruspex at Bankhaus Metzler: "In the short-term Porsche's investors will dislike it but it could make sense in the long-term."

Data sourced from Financial Times Online; additional content by WARC staff