LUXURY CAR maker Porsche’s days as an independent company are numbered after its board agreed yesterday to a takeover by Volkswagen.
Porsche chief executive Wendelin Wiedeking stood down yesterday morning, hours before the takeover was agreed, ending his abortive four-year takeover battle for Europe’s largest car company.
In a bitter reversal of fortune – and after spending €10 billion on VW shares – cash-strapped Porsche will now become the tenth brand in the VW portfolio.
An emotional Mr Wiedeking told workers at the Porsche plant in Stuttgart yesterday it was “time to draw a line” behind the failed takeover and move on.
Standing beside him, a teary Porsche chairman Wolfgang Porsche promised that the “myth and identity” of the firm his grandfather founded “would not go under” in the new company – in which his family holds a 49 per cent stake.
VW chairman Ferdinand Piech, also a grandson of the Porsche founder, said the merger – on VW’s terms – had created a company that could occupy a “leading position in the international automotive industry”.
The new Porsche chief executive, 48-year-old head of production Michael Macht, said the two companies would remain “on an equal footing”.
It’s an ignominious exit for the 56-year-old Mr Wiedeking, whose arrival in the top job in 1993 is credited with having saved Porsche from ruin.
He streamlined production, cut costs and introduced new models. By last year, the company that produces just 100,000 cars a year earned profits of nearly €8 billion.
His contractual bonus of 0.9 per cent of pre-tax profits – agreed in Porsche’s bad days – made Mr Wiedeking Germany’s best-paid executive with a bonus last year of €80 million. Yesterday, the company said he is likely to pocket a €50 million severance package.
Once celebrated in Germany as the country’s most successful manager, critics say Mr Wiedeking’s stunning success eventually went to his head. After penning a book called The David Principle – about David and Goliath struggles in business – he made what would prove a fatal decision to go after VW, a firm seven times the size of Porsche.
Citing historical links – Ferdinand Porsche built the VW Beetle – Mr Wiedeking said Porsche’s 2005 VW buy-in was a way of deepening existing strategic partnerships between the two car-makers.
The mask fell last year when Mr Wiedeking began an aggressive spending spree through a new holding company, Porsche SE, to win outright control of VW.
Last December Porsche SE caused mayhem on financial markets by announcing that its total VW stake – in stock and options – amounted to just short of a controlling stake at 74 per cent.
Hedge fund managers who had taken huge short positions on borrowed VW shares – selling them on in the hope of profiting from a slide in value before they bought them back – were forced to buy back the shares at eye-watering prices of up to €1,005.
The stroke earned Porsche €6 billion and the company seemed on course to achieving its goal.
Then the economic slowdown struck. Though Porsche AG, the auto manufacturer, had billions in cash reserves, the new holding company, Porsche SE, had debts of €10 billion from its VW spending spree. Porsche’s bankers were unwilling to underwrite the loans indefinitely, let alone finance the purchase of VW options due this month.
At first, Porsche hoped to save its independence by bringing in the cash-rich Emirate of Qatar as a minority shareholder. When Qatar said it was only interested in Porsche’s outstanding share options, Porsche agreed to sell out.
Besides VW and Porsche, Qatar will join the new board with a 17 per cent stake. The other major shareholder will remain the state of Lower Saxony, where VW is based. Under a controversial law, the state’s 20 per cent minority stake allows it to block decisions of other shareholders.
While both companies spoke of partnership yesterday, the terms of the deal make it clear that it is VW in the driving seat of the merged company.
