First Porsche buys in, then it's revealed that DaimlerChrysler has been looking at an equity stake in Volkswagen. So, what's going on? This week's edition of The Economist reviews the popular theories about the recent activity.
First, German companies have traditionally exchanged shares in each other, partly to keep foreign shareholders out. Second, there are historical and family ties between VW and Porsche - after all, Ferdinand Porsche designed the first Beetle.

But there is a viable business case for Porsche?s strategy. VW is a key part of Porsche?s business - it provides 30 percent of the parts used in Porsches, and the two companies have joint long-term projects (Touareg/Cayenne and hybrid development, for example). And Porsche will enter a new, bigger, and unfamiliar market in 2009 with the launch of the Panamera (pictured), which competes directly with Mercedes and BMW. A close relationship with a bigger manufacturer could be a big strategic advantage.

So why did Porsche have to spend nearly $4 billion to keep an already-established relationship with VW? Because VW is in trouble. Its market valuation is less than the estimated market value of its subsidiaries if VW were broken up. So hedge funds and corporate raiders, who specialize in breaking up large companies to ?unlock shareholder value,? have been circling, vulture-like, around Volkswagen. Porsche?s move is a pre-emptive strike to vulture-proof its strategic partner.


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