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Hunting for big game can be a tricky business. The saga of Volkswagen and Porsche appears as though it may soon draw to a close with the hunter being swallowed by its prey. At a special meeting of the Volkswagen supervisory board on Thursday, an agreement was approved that will ultimately lead to assimilation for Porsche.
Currently, Porsche SE holds a bit over 50 percent of Volkswagen's common shares along with options for another 20 percent. Porsche will start off by negotiating to sell those options to the Emirate of Qatar for an undisclosed sum. Once that deal is done, Volkswagen will buy 42 percent of Porsche AG (the car making business) before the end of this year. Volkswagen will pay €3.3 billion for that stake.

VW will pay another €3.55 billion for Porsche Holding Salzburg, a trading company owned by the Porsche and Piech families. Ultimately, by the end of 2011 as Porsche SE reduces its debt load with all of this new cash, Volkswagen and Porsche will merge into a single company.

That is if all goes according to plan. What could possibly go wrong? Press release from VW after the jump.

[Source: Volkswagen]


Volkswagen's Supervisory Board approves Comprehensive Agreement for an Integrated Automotive Group with Porsche

* Comprehensive agreement reached by the parties: multistage transaction structure, completion expected in the course of 2011

* Volkswagen's solid financial base and Porsche's independence will be preserved

* High growth, earnings and synergy potential accompanied by job security

* CEO Winterkorn: Jointly on track to become the worldwide number one

Wolfsburg, 13 August 2009 - At its extraordinary meeting today, Volkswagen Aktiengesellschaft's Supervisory Board approved the comprehensive agreement to create an integrated automotive group with Porsche led by Volkswagen. A corresponding agreement has been negotiated by Volkswagen AG and Porsche Automobil Holding SE, as well as the Porsche and Piëch family shareholders and the employee representatives of the companies involved. Porsche Automobil Holding SE's Supervisory Board has also approved the concept for the combination of the two companies. The comprehensive agreement seals the creation of a joint group with ten strong brands.

Under this agreement, Volkswagen will initially take a 42.0 percent stake in Porsche AG by the end of 2009, and it will also see the family shareholders selling the automobile trading business of Porsche Holding Salzburg to Volkswagen. The plans will culminate in the merger of Porsche SE with Volkswagen. This is expected to be completed in the course of 2011, and will require the approval of both companies' shareholders. Porsche will remain an independent company headquartered in Zuffenhausen. The details for implementing the concept will be finalized in the coming weeks. At the same time, negotiations with the Emirate of Qatar to acquire options on Volkswagen shares will continue, and talks will be initiated with Porsche's financing banks to discuss the overall concept. Successful completion of these discussions would be a further key step on the way to becoming an integrated group. Implementation of the agreement is also subject to the standard approval by the relevant authorities.

Prof. Dr. Martin Winterkorn, Chairman of Volkswagen Aktiengesellschaft's Board of Management, stated: "Volkswagen and Porsche today took a decisive step towards a joint future. As a group with now ten strong, independent brands we will further expand our unique global position. More than ever before, we now have what it takes to become the automotive industry's number one. Volkswagen is systematically continuing its successful multibrand strategy by integrating Porsche. Additional new growth opportunities will emerge for Porsche under the umbrella of the integrated group. Following constructive talks, we have agreed a solution that reflects the interests of all parties. I am convinced that the outcome of this integration will be the best vehicles for our customers, secure jobs and the creation of long-term value for our shareholders."

The integrated group combines sound strategic logic, an attractive financial proposition and social responsibility

The combination of Volkswagen and Porsche will see the emergence of an integrated automotive group with unit sales of around 6.4 million vehicles and more than 400,000 employees. The key financial figures of the combined company will see a sustained improvement, in particular due to the healthy level of profitability and the expected strong growth of the Porsche vehicle range.

The creation of this integrated group with ten strong brands led by Volkswagen follows a compelling industrial logic: the integration of Porsche AG and the automobile trading business of Porsche Holding Salzburg will allow Volkswagen to further extend its position as the world's leading multibrand group. The integrated group will hold a leading position in terms of global market presence, segment coverage, technology and innovation, global purchasing power and manufacturing base. It offers attractive growth prospects thanks to its superior modular systems, solid financial position, effective management and excellent employees.

Porsche's outstanding technical expertise and its unique legend will enhance the value of Volkswagen's brand family. The product ranges are highly complementary, and adding Porsche will enable a significant expansion of the integrated group's position in the premium segment. With the addition of the development center Weissach, the group's innovation leadership will be further enhanced. Additionally, the integration of Porsche Holding Salzburg's highly profitable automobile trading business will considerably strengthen the Volkswagen Group's distribution activities. Porsche Holding Salzburg has a footprint in 13 Eastern European and five Western European countries, as well as in China, and its pronounced retail expertise already makes it a key partner today for Volkswagen's market success.

Porsche's independence in the integrated group will be safeguarded, in line with Volkswagen's proven decentralized management model. As is the case today with Audi and other successful group brands, Porsche will retain its identity, while at the same time benefiting from its membership of the integrated group. Under the comprehensive agreement, Porsche will be an independent company headquartered in Zuffenhausen, retaining its independent structures. Additionally, Porsche AG's employee representatives will be able to participate in the elections to Volkswagen AG's Supervisory Board following the merger.

Volkswagen's proven management model will enable all potential synergies to be realized quickly. In the long term, this will increase annual operating profit in the group by a total of around EUR 700 million.

With new, additional models, unit sales of Porsche vehicles will increase substantially. CEO Winterkorn: "We want to write a new chapter in a history of sustainable growth. This will help us safeguard high-quality jobs in Germany for the long term and create new ones."

Transaction structure: a fair price and solid financing

Under the comprehensive agreement, the combination of Volkswagen and Porsche to form an integrated group with ten strong brands under a common group-wide leadership will be achieved in several stages, and is expected to be completed in the course of 2011. Commenting on the overall concept that has been agreed, Hans Dieter Pötsch, Volkswagen Aktiengesellschaft's CFO, said: "It combines the greatest possible degree of certainty that the transaction will run smoothly with the creation of a stable ownership structure, a fair price and very solid financing. It also reflects the interests of all parties and safeguards Volkswagen's solid financial position and strong rating."

In the first step, Porsche Automobil Holding SE plans to sell most of its options on Volkswagen shares to Qatar. Successful completion of these talks, which are already at an advanced stage, would be a key step on the way to becoming an integrated automotive group. Exercising the options would result in Qatar becoming Volkswagen's third anchor shareholder.

At the same time, Porsche will seek the support of its lending banks for the overall concept that has now been agreed to further safeguard its financial stability, and will negotiate a new financing structure with them.

Provided that these talks are successful, and if Qatar acquires the portfolio of options, Volkswagen will then take a 42.0 percent stake in Porsche AG by the end of 2009. Based on the comprehensive due diligence and valuation process that has been performed a value of EUR 12.4 billion has been determined for the company as a whole, including the expected synergy effects. On this basis, and after factoring in Porsche's debt, Volkswagen is expected to pay approximately up to EUR 3.3 billion for the 42.0 percent stake.

To finance its investment in Porsche AG and safeguard its rating, Volkswagen is planning a capital increase in the first six months of 2010 by issuing new preferred shares. The Supervisory Board will address the issue and resolve the details in the near future. Such a capital increase requires the approval of the shareholders, which is expected to be obtained at an Extraordinary General Meeting by the end of this year.

Another component of the overall concept is that the family shareholders will sell to Volkswagen the operating business of the separately owned Porsche Holding Salzburg. An enterprise value of EUR 3.55 billion has been determined for Europe's largest automobile trade company, with unit sales of most recently 474,000 vehicles. The trading business can be sold starting in 2011. In this case too, however, Porsche Holding Salzburg will retain its current structure and responsibilities as an organizational unit, and family members will remain represented in the company's governing bodies.

The family shareholders will use the bulk of the proceeds from the sale of the trading business of Porsche Holding Salzburg to increase the ordinary share capital of Porsche SE. This capital increase is designed to further improve Porsche SE's financial situation and will happen before the intended merger with Volkswagen. The increase in the ordinary share capital will be accompanied by the issuance of new Porsche SE preferred shares.

Following this, a financially stable Porsche SE will be merged with Volkswagen – the final step in the combination of the two companies. The merger requires the approval of the general meetings of both companies. Completion is expected in the course of 2011.

The precise shareholder interests following a merger are not yet final and depend on the volume of any capital increases, the cash flow and liquidity or debt situation of the two companies, and on the merger ratio for Volkswagen and Porsche SE established at the time of the merger. However, the Porsche and Piëch family shareholders will remain the largest shareholders at Volkswagen, and the State of Lower Saxony will continue to be the second-largest shareholder in the Volkswagen Group in the future.

According to the comprehensive agreement, the status of Lower Saxony will in future be explicitly anchored in Volkswagen's articles of association. It is envisaged that Lower Saxony will be entitled to appoint two members of the Supervisory Board. The existing blocking minority rule will be reaffirmed – at Volkswagen, key decisions by the Annual General Meeting require a qualified majority of more than 80 percent of the share capital represented at the AGM.

There are also plans to offer a substantial investment opportunity to the worldwide employees of the integrated automotive group. The employee participation model will be implemented via an employee foundation to be established by the group works councils of Volkswagen AG and Porsche AG.

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    • 1 Second Ago
      • 5 Years Ago
      perhaps we'll see a VW powered 911

      oh wait....
      this could seriously be great for porsche-the opportunity to make a really low cost sub-boxster car. that would have profit written all over it-its not like 1/2 of boxtser owners aren't doing it for the image anyway. now let a few more who can dish 35 but bit 45k out get in on the fun
        • 5 Years Ago
        before the panamera, i would have said, too big.
        now? yeah, could fit in their line up.
        err, thats just a cayman with a usable boot. cayfamily, anyone [get it]?
        • 5 Years Ago
        I'm all for a G37/335i fighting Porsche, in both price and performance.
        • 5 Years Ago
        I'd rather see Audi A4 and A5 fill that role, of really stepping up the competition to the G37 models, with more widely available V6 engines, or more turbo-4 power.

        Porsche doesn't need to step on Audi's toes like that.

        Frankly, the 987 and 997 lines don't need to go down market.

        The Cayenne and Panamera don't need a third down-market sibling, either.

        Porsche is one company, but their automotive products seem to be those two distinct lines, the boxer-powered sports cars, and the front V-engined touring vehicles.

        The only additional car they could really use... a BMW 6-series, Jag XK-coupe competitor, a new AWD or RWD, PDK or 6MT, V8 and Turbo V8 powered grand touring coupe. A new 928, priced well above the Audi A5, and Audi does not have an A8 coupe. (and I would rather see a Porsche 928 successor than an Audi A9 coupe, anyway.)

        R8 is a mid engined sports car, rather than a front-engined GT coupe, and is more toward competition to the Carrera 4S, and 997 Turbo, but differing in engine placement, engine design (boxer, rather than V), and cylinder count (6 and turbos, vs 8 or 10 cylinders)

        I think, with the body shrunk to 2-doors, 2+2 seating, with a coupe roofline, and a bit less pedestrian front bumper cover, it could be quite an attractive car. (please don't peak the roof above the windshield and hatchback, but a continuous curve, peaking above the B-pillar. The roofline of the Panamera is what NOT to do.)

        The Panamera, especially it's great platform UNDER the skin, could make a fantastic GT coupe, with PDK, PASM, AWD, (perhaps with an S-model RWD-only variant, and optional 6-speed manual gearboxes for a bit more direct sport-package...)

        But Porsche does not need to be a brand with big presence below $45K. They don't need a car below the Boxster's price point. That is half of Audi's, and VW's brand domains. An "entry level" Porsche is a used Porsche. It has been that way, it should continue that way.
      • 5 Years Ago
      Keep in mind that the family power behind Porsche is in large part also the very same corporate political power behind VWAG. Never ever, while he is still alive, discount the Dr. Piech factor. Porsche will do what it wants because it still is controlled by car people like Dr. Piech who also very much directs VWAG. Porsche is a huge cash cow normally and will be so again and because of that will retain almost all of it's independence.

      It is that same "we're making lots of money" reason Audi is so often able to thumb it's nose at Wolfsburg engineering. Audi makes lots of money therefore Audi is allowed the latitude to do pretty much what it wants. Lose money (like the Spanish division SEAT), and you lose control of your engineering fate. In SEAT's case, this has probably been a good thing. Make money as Skoda has done in the last few years and more control is granted. Porsche's fate is it's own to determine as long as it keeps making money.

      • 5 Years Ago
      With all the likely cross-pollination of engineering, personnel and ideas at the two companies over the next few years, I think we're going to end up with more Volkswagen based Porsche's - an idea that doesn't bother me in the slightest, as Porsche has always borrowed technology and engineering from it's new big brother. I wouldn't mind seeing a new, lower cost Porsche roadster based on the Volkswagen BlueSport concept, and I doubt Volkswagen or Porsche would mind either, as it would make the business case for the development of the BlueSport more palatable for VW, and have the happy side effect of increasing Porsche's production and sales volume.

      Also, as Porsche is now effectively becoming a subsidiary of Volkswagen, rather than the other way around, Porsche will have no direct say over the future development of the Audi and Lamborghini brands, which is a very good thing, as I'd always feared for their future, particularly of Audi's sporting models, under a Porsche-controlled Volkswagen.

        • 5 Years Ago
        Amen to that! Hopefully, the VW-Porsche merger/takeover increases the likelihood that the VW BlueSport, along with Porsche and, perhaps, Audi derivatives will see production.
      • 5 Years Ago
      This is really a big new for everyone!
      I'm sure,this would have a great effect for car lovers.

      • 5 Years Ago
      At this very moment VW is sending engineering teams over to Porsche to install the electrical gremlin generators on the assembly line.
        • 5 Years Ago
        I don't have to rely on hear say on this issue because I have owned VWs for years. Based on my experience, these rumors are just that. I currently own a Jetta and a Cabrio. They both have yet to display any problems at all. I usually drive my cars for a long time. My current Jetta is just short of 270,000 miles. Other than routine maintenance, I have replaced the timing belt once, and the car has a new starter. I had a Jetta before which I drove without nominal problems for almost 250,000 miles before I traded it for my current one. My son had a golf for several years without any problems at all. He just traded it for a new Jetta which has only 1,300 miles on it so far. Obviously, there are no problems at all. My daughter had a Golf for several year. She recently traded it for a Jeep Wrangler (silly child) with 195,000 miles on it. That car too served her well without any nominal problems.
      • 5 Years Ago
      This makes me sad. There are so few independent automakers nowadays.
      • 5 Years Ago
      "Ferdinand Porsche was the engineering force behind the VW beetle, which pretty much launched VW."

      Yes Hiltler commissioned Ferdinand Porsche to develop the VW Beetle. I believe Volkswagen means "peoples car". One of the good things Hitler did, well that and pooled the resources of scientist to develop the H-bomb.
        • 5 Years Ago
        Hitler did commission the VW, but Dr. Porsche had developed it long before.
      • 5 Years Ago
      I guess this means that they worked out the huge tax liability with the German government.
      • 5 Years Ago
      Resistance is futile, Porsche must be assimilated. The Emirate of Qatar? First they buy 4% of Tesla from Chrysler and now this. When will the Emirate be producing these cars?
      • 5 Years Ago
      Why does this deal have to be so complicated. Assuming all the players want this to happen (VW management, Porsche management etc) why cant VW just buy all the shares in Porsche SE (the parent company of the whole shebang) and get it over with?
      • 5 Years Ago
      I hope VW blows some fresh air into the heads of Porsche designers.... they can have their 911 but PLEASE do something NEW... not a 911 SUV called Cayenne a 911 Limo called Panamera...

      Volkswagen once saved Porsches ass... They placed the development order for a cheap payable sportscar that went into produciton as a Porsche after VW droped the idea facing the oil crisis. I am talking about the 924 that was later updated to 944 and 968... this model series still marks 1/3 of all Porsche ever produced, without the money earned with this "VW" model Porsche would have died ealry 1990.

      Looking at Audi, Lamborghini, Bentley, Bugatti I hope that VW will push Porsche to a new level.
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