Facing enormous investments on the horizon, an initial public offering of Volkswagen’s most profitable brand could help replenish the German carmaker’s coffers at a critical juncture.
But the risks are twofold. The company only has one shot at the share sale—a further placement is not on the cards. For investors interested in subscribing, they can expect to only be backseat owners.
According to current plans, Volkswagen foresees selling in the fourth quarter a 25% stake in Dr. Ing. H.c. F. Porsche AG, the fully-owned carmaker behind the 911 luxury sports coupe.
Analysts believe it can fetch a market cap of €80 billion [$89bn], which would make it the fifth most valuable carmaker ahead of even Mercedes-Benz, BMW and General Motors.
“Through a Porsche IPO, Volkswagen would receive a significant degree of additional financial flexibility,” the chairman of VW’s board of directors, Hans Dieter Pötsch, told reporters on Tuesday.
The world’s second largest carmaker by sales volume after Toyota needs the money badly if it does not want to miss out on the auto industry’s megatrends of the future.
Pötsch outlined all the investments now facing his chief executive, Herbert Diess: engineering a whole new family of zero-emission cars that share common technical underpinnings, developing competitive software that can close the gap to Tesla, constructing of six battery cell plants in Europe and launching a mobility-on-demand platform that might one day offer rides in robotaxis.
“The transformation will pose considerable demands on Volkswagen, including financially,” Pötsch told reporters.
Last week for example, VW announced it planned to spend over €7 billion to build up an entire EV supply chain in Spain to feed its two local plants with battery cells. To better manage the project and reduce risks, it is bringing on partners to help.
No say
Whereas Tesla can raise billions of dollars in equity in a day thanks to its $1 trillion-plus market cap, VW cannot raise money through a share sale.
The German state of Lower Saxony, which counts VW as its biggest employer, will veto any change to its capital structure that could dilute its prized 20% blocking minority.
An IPO of Porsche, the group’s crown jewel with operating profit margins north of 15%, is an elegant solution to this conundrum.
But it comes with strings attached: any fund manager or retail investor subscribing to the planned IPO would have no say.
That’s because VW is creating a dual-class ownership structure, and only plans to ask its largest shareholder, the finance vehicle Porsche Automobilholding SE, to buy the 25% of the stock that confers voting rights.
Everyone else would effectively be a glorified bond holder, earning interest in the form of a slightly more lucrative dividend.
Porsche SE, the debt-free holding that belongs to the Porsche and Piech families, is a friendly investor for VW. It already controls the carmaker and enjoys representation on the board through multiple directors – not least Pötsch himself, who serves as the CEO of their company.
The two clans, however, had been loath to the idea of the IPO of the sports car business initially as it would entail going back into debt to finance the purchase.
They have now agreed to front the money, however, as VW is splitting the proceeds from the IPO.
Half of the €20 billion VW hopes to rake in will be redistributed to its shareholders, including both Porsche and Piech families as well as Lower Saxony, easing the burden.
Ukraine a risk
Volkswagen and the two clans go way back: it was Ferdinand Porsche that developed the iconic VW Beetle that powered Germany’s post-war economic miracle. His son Ferry later went on to found the Porsche sports car company that launched the 911.
Recently however, their history has been a turbulent one.
Over a decade ago, the families sought a hostile takeover of much larger Volkswagen. Their plan was to pay back the resulting mountain of debt by raiding the carmaker’s own warchest—much like a private equity firm might.
The two clans were halfway through their plan when the financial crisis hit and banks refused to roll over their loans.
An emergency deal was struck that saw the families avoid bankruptcy by selling their prized sports car brand to VW in two tranches, first in December 2009 and then three years later, for a total price of €8.4 billion in equity.
Announcing the outcome of the negotiations to save his father’s company at the time, a tearful Wolfgang Porsche wept while promising employees at the factory gates of his company’s home plant in Stuttgart “the legend of Porsche lives and will never be destroyed.”
Now they will be buying back a 12.5% stake of the company for an estimated €10.7 billion.
The deal may yet fall through, however, as a high valuation is paramount for VW.
Offering a stake in Porsche is a one-time opportunity, since the company wants to retain the remaining 75% to maintain full control over the sports car maker. Another share sale is not on the cards.
“Should the conflict prove protracted, we cannot rule out this may have implications for an IPO,” Porsche SE finance chief Johannes Lattwein told reporters on Tuesday.
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