VW Law. All in the family as Porsch/VW consider wedding plans

Update [Aug 2009]

[This post offers background to the eventual merger between Porsche and Volkswagen. The original post follows ]

No-one was surprised when the so-called VW law was declared illegal. The ruling had been anticipated for a long time by Porsche through skillfully increasing its stake in VW. The stage was set for an official announcement of a merger between two German industrial dynasties which already had close family ties

European commentators had been discussing the merger for some while, as the so-called VW Law was tested in the courts. The general view was that the law contravened EU principles on competition grounds. The possibility of non-German control would encourage a ‘friendly’ takeover, with Porsche a front-running candidate.

There are strong links between the companies

Dr Ferdinand Porsche designed the original Beetle in 1936, and his grandson, Ferdinand Piech, is chairman of VW and the controlling shareholder in Porsche. Wendelin Wiedeking, chief executive of Porsche, is a member of the supervisory board of Volkswagen.

Anticipating the ruling will go against the VW Law after the advisory opinion, fellow German automaker Porsche AG increased its holding in Volkswagen to 31 percent while Lower Saxony raised its number of shares to 20.36 percent. That means the bloc of Porsche and Lower Saxony can now stop any takeover themselves with more than 51 percent combined

Frits Bolkestein was the EC commissioner for the internal market, and had no doubts about the ruling. Writing in The Financial Times, he points to Article 56 of the Treaty on the Economic Community, which states that

“All restrictions on the movement of capital between member states and between member states and third countries shall be prohibited.” This is one of the four fundamental freedoms of the European Union the freedom of movement of capital, movement of goods, services and persons.

Rumors of wars

There is a case for stating that Germany demonstrates an alternative mode of capitalism. The much-lauded strength of its industrial sector is backed by a complex governance system. Funds tend to be provided by banks rather than the financial institutions of the city. News seems to trickle through to the financial press, increasing the proportion of speculative comment over hard facts.

In November 2007, rumors suggest that Porsche intends to acquire VW, and incorporate the models under the Porsche brand through a holding company. VW declines to respond to such rumors. The powerful unions at Volkswagen sent a signal of discontent, with work stoppages, including 40,000 workers at the main Wolfsburg plant on Wednesday October 30th.

What’s going on?

Shares in VW have moved steadily upward this month. News coverage in the rest of Europe has been low. My suspicion is that plans towards securing that dynastic merger are in place. Whether the happy day is near remains to be seen.

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Volkswagen Porsche rumours continue

Wenderlin Wiedeking

Speculation is again raging about the fate of German vehicle manufacturer Volkswagen following reports that luxury carmaker Porsche plans to boost its holding in the company beyond 50pc. English-language reports do not capture the entire flavour of the German ones

According to the Telegraph

The speculation comes after Porsche, controlled by Ferdinand Piech, also chairman of VW’s supervisory board, said in July that it was not “as yet” considering increasing its Volkswagen holding. But it has been steadily increasing its ownership of the group in recent years, raising its holding from 27.3pc last March in its most recently publicised share acquisition. That move meant Porsche, topping the 30pc threshold, was forced under German law to make a takeover bid for Volkswagen.

But the company intentionally priced its offer at the lowest allowable level – the same €100.92 (£68.36) price it paid by exercising options to by the 3.7pc stake – and predictably received a take up “considerably less than 1pc of VW’s shares”.

Porsche is only required to again publicise the extent of its stake in Volkswagen if it crosses the 50pc mark.

The Rumors all cited an article from Der Spiegel that had not yet been published – I believe this is what the postmodernists liked to call a simulacrum, a replica of an original that did not exist.

The reports replicated themselves and anticipated an article that did not (yet) exist.

The unclear situation

The article when it appeared reads slightly differently to the English versions (and the computer ‘translation’ into English is far from clear).

The comprehensive accounts of the VW company by Der Spiegel are brilliant, but unfortunately only appear in English translation some time later.

At present, the publication’s German-language reports hint only at a potential battle between Wenderlin Wiedeking at Porsche and the powerful Union and its leader, Bernd Osterloh,
the Work Council boss, if Porsche attempts to change existing agreements at VW.

Wiedeking, as head of Porsche, is given far more prominence than than he is in the English Language reports.

AS long ago as february, The State of Lower Saxony (strongly directed by Christian Wulff) had abandoned the so-called Volkswagen law preventing loss of state control, and permitting Porsche to acquire shares to just-below the triggering 30% stake.

The future role of Ferdinand Piech remains also unclear. the charismatic and powerful Piech had headed VW until 2002, and remains in an advisory role. Piech

owns a significant share of Porsche, roughly 13%. In order to prevent discussions among the many family members, a policy was established in early 1972 that no Porsche family member is allowed to be involved in the management of the company.

A waiting game

Porsche seems to be playing a waiting game. VW is relatively powerless. Like Caesar of old, Wiedeking can wait until precisely the moment to strike.

[Someone correctly pointed out to me how confusing this last point is. I meant to say like Caesar the Military leader, not Caesar the Shakespearean victim.]

War and Piëch at Volkswagen

Porsche makes a bid for VW. But it’s an offer they want shareholders to refuse. It may be a bid to secure VW for the Porche family through VW’s ex-CEO Ferdinand Piëch. Confused? It so, you may thinking competitive not collaborative strategy.

This week, the financial press reported that Porsche had made a bid for Volkswagen. But the bid was accompanied by a statement that the company intended to exercise its options to acquire a slightly larger stake in the company which would push its shares to the level where it was legally obliged to offer to make an offer for all VW shares. Porsche went so far as to indicate that their bid price under-valued the shares. Even if, for some reason, there were to be an offloading, the shares would be put back on the market.

Background

Volkswagen has been protected from a hostile takeover by a little piece of German legislation that has become known as the Volkswagen law. But recently, rulings in Germany indicate that the Law violates EU principles, and is likely to be rescinded.

This has opened the way to moves from overseas bidders. German auto manufacturers dusted-down Plan B.

This is where a little background on the complicated inter-relationship of German firms and government interests helps. Porsche has enjoyed a long and collaborative relationship with Volswagen. Its first models drew extensively from the engineering technology developed down the years at VW. Today it is considered to be VW’s closest busness partner.

VW chairman is Ferdinand Piëch, one of the legendary figures of modern German industry. Piëch is the grandson of Ferdinand Porsche. He was formerly chairman and CEO, noted for his aggressive (‘proactive’) leadership style. He was to be credited with developing the brands of Audi and VW, and reversed the fortunes of VW in America, although his moves for Bentley and Rolls Royce were less successful.

One source of his wealth is the 13% share of Porsche. Under that corporation’s rules, he is barred from a directorship as a member of the family. Although no longer CEO, he has enormous influence at VW, and is still chairman of its supervisory board.

AS we noted in an earlier posts, VW has suffered a number of bloody battles over its leadership recently. After several departures following corporate misbehaviors, chief executive, Bernd Pischetsrieder, brought Mr. Bernhard, a former executive at DaimlerChrysler, into Volkswagen in October 2004 as part of his plan to cut costs at the automaker. Mr. Bernhard pushed through plans, cut 20,000 jobs and extended working hours during the course of 2006. This upset the powerful Volkswagen union, IG Metall, which is also closely allied with Volkswagen’s chairman, Ferdinand Piëch. In Novemember 2006, Mr. Piëch, together with Porsche, a major Volkswagen shareholder, pushed out Mr. Pischetsrieder in favor of Mr. Winterkorn.

So what’s going on?

If we take Der Spiegel’s line, we have just witnessed one more chess move in the game billionaire Piëch is playing to secure the future of VW with himself in change.

Pischetsrieder hadn’t posed any significant obstacle in Piech’s path towards taking power at VW. But he was an inconvenience … Shortly after Porsche’s entry as a shareholder, the VW boss commissioned J.P. Morgan to provide an expert opinion as to whether it could lead to a conflict of interests if Piech, as a co-owner at Porsche, would look to promote the interests of the sports car company as a member of the VW board. The investment bankers recommended that Piëch resign. Pischetsrieder submitted this advice to the board. And with that, his fate was more or less sealed.

So there we have it. The septuagenarian Piëch still has an undiminished appetite for a ‘friendly’ fight. Remember the cuckoo in the nest principle noted at Alliance Boots?

There are also the unheard melodies. Chess moves considered and eventually rejected. These include the possibility of VW bidding for the increasingly vulnerable Chrysler business from Mercedes.

Meanwhile, globally the next generation of global giants in the auto-industry are emerging. Will they eventually replace the increasingly vulnerable American and European dynasties?