The balance of power between Porsche and Volkswagen‘s management appears to be shifting inexorably towards those in charge of VW, Global Insight analyst Tim Urquhart said in a resarch note today.
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“Despite the recent agreement between the Porsche and Piëch families, the main shareholders in Porsche, the company would become integrated into the Volkswagen Group, talks over the process have broken down after VW called a halt,” he wrote.
“The main stumbling block appears to be Porsche’s unwillingness to give full disclosure on the state if its finances after accruing what is believed to be in the region of EUR10bn in debt in acquiring a majority stake in VW.”
But Urquhart thought the halt in talks should only be temporary as the chief shareholders in Porsche, Wolfgang Porsche and Ferdinand Piëch, were likely to force the various management parties to come to the table again.
However, the balance of power appeared to be shifting inexorably away from Porsche CEO Wendelin Wiedeking towards his counterpart at VW, Martin Winterkorn.
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By GlobalDataUrqguhart said the Financial Times (FT) had obtained a copy of an internal letter from Winterkorn that said his company needed “full transparency” about Porsche’s financial situation in order to avoid compromising VW’s own financial foundation by integrating a heavily indebted Porsche into the VW Group.
The letter added: “We share the view of the head of our works council that we need a constructive atmosphere for the talks. At the moment, this is not given.”
The FT also reported that the impetus for calling a halt to discussions came from the head of VW’s works council and the newly appointed head of the works council of the Porsche holding company, Bernd Osterloh, who consistently opposed Porsche’s creeping takeover of VW, although his opposition to the move appeared to have been placated following his appointment as head of the Porsche SE council.
“However, it appears that Osterloh has used the emerging crisis surrounding Porsche’s financial position to boost his position as a powerful agent in the complex management dynamics surrounding the increasingly convoluted relationship between Porsche and VW,” Urquhart said.
“Osterloh and Winterkorn appear to be gaining power and backing as Wiedeking and his right-hand man, Porsche CFO Holger Härter, are blamed for Porsche seemingly overreaching itself in its massively ambitious acquisition of a majority stake in VW.”
After demanding that talks due for today be halted, Osterloh also insisted that Wolfgang Porsche, head of Porsche’s supervisory board, make a clear statement about what the family wanted: a merger, a sale or an alternative outcome, the analyst wrote.
He suggested that, though the Porsche and Piëch families had agreed Porsche should now be integrated into the VW Group, there was still work to be done and individual agendas to be pursued before an agreement was reached.
“Despite the strategy being agreed two weeks ago by the two family shareholders, VW has accused Porsche’s management of lacking commitment with regards to the discussions,” Urquhart’s note said.
“According to the FT, an unnamed VW executive said Porsche’s management had pursued the talks “half-heartedly” and its leading negotiator did not attend a first meeting last week. This followed Ferdinand Piëch’s comments last week that his original idea of a full takeover of Porsche by the VW Group was still a possibility, saying that it was the simplest way to integrate Porsche into the VW Group.
“Piëch also stated that whatever course of action was decided upon, he favoured Winterkorn to head the new group and that he thought that Wiedeking would not accept a lesser role in the organisation, implying that Piëch does not believe that Wiedeking will play a part in the future of VW and Porsche.”
Urquhart said the “major shift in the balance of power in the Porsche-VW corporate dynamic away from Wolfgang Porsche, Wendelin Wiedeking and Holger Härter and towards Piëch, Winterkorn and Osterloh, who form the management power base at VW”, reflects the increasingly poor perception by shareholders and the markets of the financial stability of Porsche Automobil Holding SE, which has in the region of EUR10bn of debt.
“Porsche SE is facing difficulties in shoring up its balance sheet as a result of a reluctance by participating banks to take up the option of providing an additional EUR2.5bn, which was a component of its recent refinancing of its EUR10bn credit line, a refinancing that was only completed on the eve of the loan repayment deadline.
“There is a report in today’s Der Spiegel that Porsche has made an inquiry about the possibility of state loans to shore up its balance sheet in response to the massive decline in demand for its passenger cars in light of the global financial slowdown.
“This indicates that Porsche’s management is still exploring every opportunity to repair its own balance sheet and thus strengthen its negotiating position with regards to the future relationship between Porsche and VW.
“It is still possible that Porsche may look to alternative sources of funding and sell a stake to cash-rich sovereign wealth fund.
“However, as a major Porsche shareholder, Ferdinand Piëch is highly likely to oppose such a move and continue to press for a solution in which Porsche AG would either be acquired by the VW Group or integrated into its brand structure.
“There would also be a massive irony in such an outcome as Porsche’s initial interest in acquiring VW shares was billed as a way of protecting the company from foreign takeover.”
Urquhart said the decision by German financial regulator BaFin to re-open the investigation into Porsche’s strategy to acquire VW shares would add to Porsche management woes.
“Either way, it seems that the shift in power between Porsche and VW’s management appears to be acquiring a momentum of its own.”
