Volkswagen Approves Porsche Merger Plan, Qatar Stake
July 23 (Bloomberg) -- Volkswagen AG agreed to combine withPorsche SE after the departure of the sports-car maker’s ChiefExecutive Officer Wendelin Wiedeking capped a 4-year-long feudfor control of the two German manufacturers.
An integration of Volkswagen with the 911 sports-car makerwill benefit both automakers in the global market, VW ChiefExecutive Officer Martin Winterkorn said in Stuttgart, Germany.A Qatar fund will acquire 17 percent of VW, becoming the third-largest investor in the Wolfsburg-based company.
Volkswagen and Porsche, which said on May 6 that they werein talks to merge, were at loggerheads about ways to cutPorsche’s 10 billion euros ($12.8 billion) of debt. Wiedekingagreed today to step down after 16 years as CEO. Porsche,controlled by the Piech and Porsche families, owns about 51percent in VW, Europe’s No. 1 carmaker, while the German stateof Lower Saxony is the second-largest shareholder with a 20percent stake.
“They have been doing a lot of projects together, it’s agood move for both,” said Arndt Ellinghorst, an analyst atCredit Suisse Group AG in London. Also, “they are bringingtogether the two companies that started together.”
Wiedeking choked up after being greeted by resoundingapplause and horns from hundreds of workers that had gathered inthe rain at Porsche’s main Stuttgart plant. He told workers thathe had come to the conclusion over the weekend that it was timefor him to leave and outlined plans to donate half of his 50million-euro severance pay to a foundation for Porsche workers.
‘Damn Hard Speech’
“You make the speech damn hard,” he said. “Without you,I wouldn’t have been anything.”
Michael Macht, who will succeed Wiedeking as head ofPorsche’s carmaking operations, vowed to continue the strategyestablished under Wiedeking while family owner Wolfgang Porschewas holding back tears as he ended his address and huggedWiedeking several times.
Porsche’s headquarters will remain in Stuttgart, LowerSaxony Prime Minister Christian Wulff said after a meeting ofVW’s supervisory board. Qatar will be a “reliable”shareholder, he said. The carmakers will work on details of theintegration in the next three weeks, Winterkorn said.
Qatar will receive the 17 percent VW stake as part of atransaction with Porsche to take over options that can beconverted into VW shares, a person familiar with the situationsaid earlier. The Persian Gulf state will at the same timeprovide a 750 million-euro loan to Porsche, said the person, whoasked not to be named because the discussions are private.
Porsche’s Transformation
Wiedeking had opposed selling Porsche’s automotive unit toVW. Almost bankrupt when he took over as CEO in August 1993,Wiedeking transformed Porsche into the automaker with thehighest profit margins for the industry. In 2005, he began usingcash from the luxury-vehicle business to acquire shares of VW, acompany that builds more cars in a week than Porsche does in ayear.
The David-bests-Goliath tactics worked until Wiedeking’sefforts to topple power structures at VW failed and the economiccrisis thinned profits and spooked banks. When debt spiraled outof control, he was forced turn to the company’s family owners,the Piechs and Porsches, for capital and to court Qatar for aninvestment. A spokesman at the Qatar Investment Authoritydeclined to comment when reached by Bloomberg today.
Wiedeking’s departure was announced after a meeting ofPorsche’s supervisory board. At the same gathering, directorssupported Porsche’s plan for a capital increase of at least 5billion euros.
Wiedeking’s Successor
Macht, head of production, was named to run Porsche’soperating unit. The 48-year-old Macht joined Porsche in 1990 andbecame an executive board member in 1998. Macht graduated fromthe Stuttgart Technical College in 1986 with a degree inmechanical engineering. Thomas Edig, board member in charge ofhuman resources, will become Macht’s deputy.
When Wiedeking took the helm in 1993, Porsche posted a netloss of 122 million euros on sales of 978 million euros. Lastyear, profit was 6.29 billion euros, boosted by gains from theVW options, while sales reached 7.47 billion euros, comparedwith 113.8 billion at Volkswagen.
Porsche, which has made more money on every car it sellsthan any other automaker since at least 2002, generated anoperating margin of 13 percent last year, compared with 1.5percent at BMW AG and VW’s 5.9 percent, data compiled byBloomberg show.
Japanese Tactics
Wiedeking streamlined production with the help of expertsfrom Toyota Motor Corp. to have components delivered on time andin the order of assembly. He focused Porsche on the iconic 911sports car and then added the Boxster roadster in 1996 andCayenne sport-utility vehicle in 2002 to broaden the brand’sappeal. The costs were kept low by outsourcing Boxsterproduction to Valmet Corp. in Finland and partnering withVolkswagen on development and parts for the Cayenne.
Wiedeking was “the best manager”, said Kevin, a 17-year-oldtrainee at Porsche’s main plant in Stuttgart. “He lived forPorsche” and his departure marks “a black day.”
To contact the reporter on this story:Andreas Cremer in Stuttgart, Germany via acremer@bloomberg.net;Chris Reiter in Stuttgart, Germany via creiter2@bloomberg.net.
Last Updated: July 23, 2009 11:06 EDTSource: Bloomberg
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