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New Porsche/VW deal triggers power test

  Porsche’s plan to merge with Volkswagen triggered a power struggle on Thursday when labor leaders and a key politician threatened to veto a deal unless they win key concessions.

Laden with debt, Porsche Automobil Holding SE has abandoned its original plan to seize control of Europe’s largest automaker and now seeks a compromise with Volkswagen, VW’s home German state and powerful labor leaders.

Its new proposal for a merger, to be thrashed out over the next four weeks, foresees creating an “integrated car manufacturing group.” Porsche will struggle to dictate terms of a new deal, analysts and bankers close to the deal say.

“Volkswagen and Lower Saxony are now in the driver’s seat,” Credit Suisse analyst Arndt Ellinghorst said on Thursday. “Porsche needs VW’s cash, and VW doesn’t need Porsche’s debt.” Porsche declined to comment.

Porsche shares closed down 17.9% at €46.77. Volkswagen ordinary shares fell 1.4%, while its more liquid preferred stock gained 1.5%.

Porsche ran up €9 billion ($11.99 billion) in debt acquiring a 51% stake in VW and was forced to abandon its target of stocking up to 75%.

Lower Saxony owns a 20% stake in Volkswagen and has the right to veto significant decisions at the company.

Aside from Porsche and VW’s management, talks to create a new group will include “Lower Saxony as largest co-shareholder as well as employee representatives of both companies,” Porsche said in a statement late on Wednesday.

Labor leaders at Volkswagen and Porsche were quick to voice their demands on Thursday. They insisted a German law enshrining Lower Saxony’s influence at VW remain intact and that labor have a major say in how the new company is run.

Porsche labor reiterated it stood behind Porsche CEO Wendelin Wiedeking and finance chief Holger Haerter, whose drive to control VW landed Porsche with its debt woes.

Demands by stakeholders make it difficult for Porsche’s management to force through tough decisions such as large-scale job cuts in a market swamped with overcapacity.

Evaporated demand for cars has already made sales plunge at other automakers and led some -- like Chrysler and Opel -- to seek new owners.

Lower Saxony Premier Christian Wulff insisted on maintaining the state’s blocking minority stake, two seats on the supervisory board, as well as a veto on plant closures. He added that a merger was by no means a done deal.

Under the new group, 10 brands will unite under one roof, Porsche said. Until now VW and Porsche have been run independently with separate management.

Volkswagen has nine brands -- Volkswagen, Lamborghini, Skoda, Bentley, Bugatti, Audi, Scania, Seat and Volkswagen Commercial Vehicles. Porsche Automobil Holding SE has run the Porsche sports car brand independently.

Porsche’s existing shareholders will fund a capital hike of up to €5 billion ($6.7 billion) for the new company in 2009 or 2010, a person familiar with the matter said. (Reuters)