Porsche SE plans to gain control of over 75% of Volkswagen in order to pass a domination and profit transfer agreement that would grant it full control of VW’s cash flows, Porsche said on Sunday.
As of the end of last week, Porsche said in a statement, it owned 42.6% of Volkswagen voting stock and held a further 31.5% in cash-settled options on VW ordinaries -- giving it indirect control of 74.1%. “The goal is to raise this to 75% in 2009, so long as the economic conditions permit, and pave the way for a domination agreement,” it said, adding the Porsche and Piech clans that control the eponymous European holding had conclusively agreed last week in favor of dominating VW. Porsche said it still expects to boost its direct stake in VW votes above the 50% threshold by the end of this year. A Volkswagen spokesman said the news reflected Porsche’s desire to raise its stake in the world’s third largest carmaker.
Under German law, a domination agreement requires at least 75% control of a company’s votes present at a shareholder meeting but traditionally VW has required 80% in order to give its home-state government additional clout. Porsche is currently in a legal dispute with Lower Saxony over the Volkswagen Law and a corporate statute that both stipulate consequently that any such agreement would require the approval of the German state, which holds a blocking minority with just 20% of VW’s votes. Lower Saxony’s government declined to comment on Porsche’s plans, while a spokesman for the works council that represents the interest of VW’s organized labor said staff continued to reject a domination agreement under Porsche. VW labor leader Bernd Osterloh has repeatedly been at odds with Porsche CEO Wendelin Wiedeking, who angered 360,000 Volkswagen workers with unpopular measures such as campaigning hard for the end of the VW Law.
SCHAEFFLER KNEW BETTER
In a statement sent to Reuters, Osterloh said it was clear to him what Wiedeking wanted since he had behaved this past year as if Volkswagen already belonged to him. He said Schaeffler, the new controlling shareholder of Continental, had learned to be sympathetic to the needs of the staff at the auto parts giant, although Schaeffler had never enjoyed good relations with its own unions. “Even Schaeffler understood that you cannot acquire a company against the will of the employees,” Osterloh said.
The 31.5% that Porsche holds in cash-settled options does not grant it physical delivery of VW ordinary shares, but allows it to receive the difference in cash between the market price and an option’s strike price. This allows Porsche to lock in its effective cost for expanding the voting stake, last announced at 35.1%, by hedging its risk against a continued rise in VW shares.
On the last trading day before Porsche announced its plans to buy a 20% stake in Volkswagen voting shares on Sept. 25, 2005, ordinaries closed at just below €52. Earlier this month, they temporarily surged to €452. Traders cited speculation that the collapse of Lehman Brothers forced hedge funds that had gone short using borrowed VW shares from the US investment bank to quickly close their positions. “Porsche decided in favor of this announcement after it became apparent that there were considerably more short positions in the market than expected,” Porsche said in Sunday’s statement. “The disclosure should therefore give the so-called short sellers...the opportunity to unwind their positions without haste and greater risk.” (Reuters)