Volkswagen AG’s supervisory board is due to meet tomorrow (18 November) to discuss the two-year wrangle to merge with Porsche.
Analysts believe the deal is on the verge of being scrapped because of legal complications and potentially huge tax liablities estimated at around EUR1bn (US$1.3bn) that VW could pay if it exercises an option to buy its remaining share of Porsche’s car making business.
Porsche holds a majority of VW common stock, and VW, in turn, owns 49.9% of Porsche’s automaking business. Martin Winterkorn is chief executive of both companies and wants to integrate the Porsche car business into VW as part of VW’s ambitions to be the world’s largest car company. Integrating the two would boost profitability with savings estimated at EUR700m.
In 2009, Porsche failed in its audacious attempt to takeover VW during which it racked up debts of EUR10bn. Since then the two companies have been working on a merger but that idea was scrapped in September because US lawsuits and an investigation by German prosecutors made a valuation impossible. Short sellers of VW stock have sued Porsche in the US, claiming the sports car maker secretly piled up VW shares and later caused the investors to lose more than US$1bn.
Now VW could exercise options to acquire the remaining 50.1% stake in Porsche’s car making business for EUR3.9bn, leaving Porsche SE as a holding company for its 50.7% stake of VW’s common stock.
But that option isn’t available until November. 15, 2012, and would then trigger the estimated EUR1bn tax bill.
Tomorrow’s board meeting is the final one scheduled this year.