VW Investors Turn Down Porsche's Low-Ball Offer

Anthony Fontanelle
May 8, 2007

The Volkswagen AG investors refused Porsche AG's 35.9 billion euros takeover offer - the lowest allowable under the German law. The offer is 16 percent lower than the company’s 42.7 billion-euro market value on March 23 which is a day prior to Porsche’s announcement.

The offer, designed to leave Porsche with a controlling stake rather than full ownership, helps block any rival bids for VW as a European court considers invalidating a German law preventing a takeover. VW Chairman Ferdinand Piech, whose family controls Porsche, has increased his dominance since the sports car manufacturer first bought a stake in 2005.

Shares of VW dipped 1.19 euros, or 1.1 percent, to 109.56 euros. This year, the stock has gained 28 percent - the fifth biggest gainer on Germany's benchmark DAX Index. Porsche, which has called an extraordinary shareholders meeting for June 26 to tackle the VW offer, has obtained a 35 billion-euro line of credit to finance the purchase of VW shares.

Porsche, the Stuttgart, Germany-based maker of the 911 sports car, purchased 188 common shares and 13 preferred shares from VW stakeholders as of the end of last week. The information was divulged by the German automaker in Elektronischer Bundesanzeiger, the government's website for financial filings.

At present, the Wolfsburg, Germany-based automaker, famed for the manufacture of durable auto parts like the VW Beetle tail light cover, is aiming at the right bid. Porsche has bid 100.92 euros an ordinary share and 65.54 euros a preferred share. Bid offers started to pour in on April 30 and are set to end May 29. The sports car manufacturer’s stake remained at approximately 30.92 percent of the voting rights as of the end of last week. Porsche also said it is not seeking a majority stake at this time.

A bid now for all of VW will enable the sports car manufacturer to make future stake purchases as it sees fit. Once having made the minimum legal bid to all shareholders, Porsche is no longer mandated by law to present additional purchase offers to all investors.

The sports car manufacturer is anticipating for the EU's possible repeal of a 47-year-old German law preventing a Volkswagen takeover. An advocate general at the EU's highest court Feb. 13 proposed the scrapping of the so-called Volkswagen Law, saying it “restricts the free movement of capital.” Porsche, which supports the abolition of the law, has said that it has bought VW shares to protect its interest in the carmaker. VW is Porsche's biggest supplier. The two auto giants have a number of joint projects.

The Volkswagen AG intends to nearly double the number of its Hungarian suppliers after opening a new purchase centre in Budapest, VW and Audi AG Chairman Martin Winterkorn announced. According to a report in local business daily Világgadaság, Winterkorn met Hungarian Prime Minister Ferenc Gyurcsány Friday in Budapest.

Porsche has no intention of acquiring the majority in VW via its compulsory bid, which offers investors just under 101 euros per VW ordinary share, a hefty discount to the current market price of over 110 euros.

VW AG currently has about 60 suppliers in Hungary from which it acquires goods to the value of HUF 200 billion a year and that number is about 1.3 percent of the group's purchasing costs. Winterkorn said tha tthe company's new Eastern European centre could enlarge VW's supplier network in Hungary by a further 40 companies. The group is working on a new compact range for which it will also be seeking suppliers in the region, he added.

“We do not only want to buy here, but also establish a joint manufacturing of parts with our local partners," Winterkorn said, adding they chose Budapest for the location of the centre, as it is not far from the Gyõr and Poznan plants and potential new suppliers in the region.

The VW Group delivered 1.5 million vehicles around the globe in Q1 - an increase of 7.9 percent. Sales revenue increased 5.1 percent to EUR 26.6 billion. “The significant progress we have made in improving our competitiveness is positively reflected in our earnings", Hans Dieter Pötsch, Volkswagen AG's CFO said.

Source:  Amazines.com