Porsche is going to consume Volkswagen. Having consumed it, in the eyes of investors, it will become Volkswagen. The company which for so many years has been the great exemplar of quality engineering, brand development and manager of scarcity, will be running a volume car business with a couple of odd corners devoted to making 80,000 Porsches.
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There is no doubting that Porsche has our admiration and the 5.3m cars it builds worldwide in the new era may benefit from its excellence. But the job is a completely different mindset. More to the point, it is a mindset that its chairman now, Ferdinand Piech, failed to master when he was running VW previously.
He is 70 next month and is surely likely to produce more of the same than to innovate to cure VW of its twin sticky problems of brand proliferation and unmanageable cost in Germany.
For the moment though, he commands all the admiration of a successful alchemist. Since Piech first pushed some of Porsche’s surplus cash into VW shares, the price has nearly doubled. The Porsche price has trebled. The more VW shares Porsche bought, the more the VW shares went up. And the more they went up, the more profit Porsche made from the shares it bought earlier.
You couldn’t get a goose to lay better eggs than that.
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By GlobalDataBut why? What are the special attributes of this transaction? Since Porsche first started buying Porsche shares, the combined value of the two entities has grown by more than EUR30bn. That is one great big golden egg. Where did it come from? The usual justification in the stock market is that where companies combine, one and one can be made to equal three.
In this case, it doesn’t. We have the management of a premium brand company buying into a volume car business which it does not yet know how to run. And the very fact that most of the revenue comes from commodity products rather than specialist products means that the stock market will give new Porsche a lower rating than old Porsche: “rating compression” as the analysts politely put it.
The rules of the stock market mean that once Porsche has fulfilled Friday’s stated intention of buying another 3.7% of the shares at a fraction over EUR100, it will own more than 30% and have to bid for the whole company.
One of the subscribers could well be the state of Lower Saxony which until now has been one of a triumvirate of power brokers within VW along with the trade union barons on the board, and the Porsche family shareholders of which Piech is one.
There is little point in Saxony maintaining a significant stake now. They can no longer prevent control of the company passing beyond their reach, and their defence of jobs in the Wolfsburg region will have to change from influence to incentive.
Is there any industrial synergy in the merger of Porsche and VW that was not already apparent? Not really. The two companies have been cooperating on sports cars since the Porsche 924 and have capped the process latterly with VW Touareg, Porsche Cayenne and Audi Q7 sharing a single platform.
There is one hidden benefit – though whether it is delivered remains in the hands of totally unpredictable MEPs in Brussels. Somehow, car manufactures have to be measured on their success in reducing average CO2 emissions. How that is to be done is undecided but one option is to measure each company across all their products. New Porsche looks a whole lot more environmentally friendly than old Porsche did, with all those SEATs and Skodas in there.
Whatever the hidden justification for this deal, it is unlikely that the Porsche share price can do anything other than retreat from this point. If it retreats as far as the DaimlerChrysler price did after the purchase of Chrysler, or BMW’s did after its acquisition of Rover, there are going to be a lot of professional shareholders furious that they allowed a third disastrous merger of volume and premium.
Rob Golding
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