There is no substitute...but ok...a Ferrari I will accept
Posted on 09/26/2005 3:27:09 PM PDT by Uncle Joe Cannon
Porsche CEO's VW plan deals blow to minorities
Mon Sep 26, 2005 12:31 PM ET
By Christiaan Hetzner
FRANKFURT (Reuters) - Wendelin Wiedeking, the outspoken chief executive of Germany's legendary sports car maker Porsche (PSHG_p.DE: Quote, Profile, Research), is anything but a devout proponent of shareholder value.
But investors holding Porsche non-voting stock never dreamed the otherwise conservative businessman would spend billions to protect the independence of Europe's largest carmaker, Volkswagen (VOWG.DE: Quote, Profile, Research), via a 20 percent stake purchase.
Privately controlled but publicly listed Porsche has taken the Frankfurt Stock Exchange operator to court over requirements for index-listed firms to report quarterly results.
Wiedeking has told the media his annual salary is "nobody's business" and condemned the idea of publishing it as "socialist."
Earlier this year he told investors Porsche's relatively poor dividend yield -- just 0.8 percent when paid last year -- was a necessary evil to ensure it could finance future growth and development.
Most minority shareholders kept quiet as Porsche's market capitalization accelerated from some 380 million when Wiedeking took the wheel in 1992 to more 12 billion euros just days ago.
But following Sunday's announcement that the niche player would plow essentially all its cash reserves into building the biggest individual stake in mass carmaker Volkswagen, some investors are starting to feel as if they've been dealt a lemon.
"Porsche makes it very clear that shareholders come dead last," said Henning Gebhardt, head of equities at Germany's largest retail fund manager DWS. "Wiedeking had already said as much before, and now he has impressively proven it."
Gebhardt, who manages some 5 billion euros in assets, called the decision "completely beyond comprehension."
Porsche shares sank as much as 11.8 percent on Monday, a drop so dramatic that investors have to go back to before the September 11 attacks four years ago to find a steeper one.
GERMANS FIGHT "LOCUSTS"
Porsche defends the move, saying it is buying the stake to secure its ties over the long term to Volkswagen, both a key development partner as well as a significant supplier for roughly 30 percent of Porsche's sales volume.
Although Volkswagen builds the chassis for Porsche's best-selling Cayenne offroader and works with Porsche to develop hybrid engines, an industry consultant who declined to be named doubted that the two joint projects could justify what would be a 3.3 billion euro investment.
"It cannot be that alone. You secure the long-term future of a project before it goes into serial production and not some three years into its life cycle unless there were more projects to come," he said, dismissing the hybrid partnership as well.
"Rather than getting a comparable return for the cash invested, Porsche shareholders now will have to settle for years of VW's dividend ratio instead. It looks as if politics are playing an issue," the consultant continued.
Porsche, historically tied to Volkswagen ever since founder Ferdinand Porsche first designed the VW Beetle for the Nazis, said its investment would prevent a hostile takeover of VW by investors not committed to the carmaker's long-term interests.
Wiedeking's rhetoric of a "German solution" to ensure Volkswagen's independence recalls this summer's debate over the role of foreign hedge funds and private equity firms in Germany -- demonized by leftist politicians as "locusts."
"Volkswagen doesn't need it. They can assert themselves in the market," DWS's Gebhardt said, "it looks as if it's a step back toward Germany Inc."
Deutsche Bank downgraded its rating to "sell" and slashed its price target by a quarter to 550 euros in a research note entitled "You Will Never See the Cash!." Dresdner Kleinwort Wasserstein called the move strategic "heresy."
In a research note that placed the stock on a trading sell, DrKW wrote that there was hardly any business logic in the deal since VW's return on capital employed (ROCE) amounts to just 5 percent versus Porsche's own ROCE of roughly 26 percent.
"This move is a slap in the face of minority-preference shareholders," DrKW said.
For more on Porsche's plan to acquire 20 percent of Volkswagen, please double-click on or
Misleading headline....
LVM
Minority shareholders.
"This move is a slap in the face of minority-preference shareholders," DrKW said.
I soooooo misread that title.
ping
What flavor of minority shareholders?
Yea, I know "minority-preference"
Talk about a poorly worded headline.
LVM
Is controlling your payoffs by investing corporate capital and purposefully linking that capital's profit to the new investment illegal?
Porsche (alone, without VW) is the most profitable car company in the world on a per unit basis.
Both car companies rock. I like the bit about publishing his salary veing "socialist".
Considering the way they are priced, I don't doubt you.
well, you have to have an appreciation for the engineering and the assembly. if you think their base prices are high, you should see their options list! you need a PhD to option the things, and a alot of spare cash.
Who cares. Minorities can't afford Porches anyways.
Wait a second...
alot of their current profits are due to some very smart hedging they did on the euro/dollar. that's over now, and given how many cars they sell in the US, I have heard rumors they may build a plant here to make the SUV.
I thought this was a thread about minorities stealing police cars with 9-1-1 painted on them thinking they were Porsches.
Holy crap! Is John DeLorean running Porsche now? VW dealing blow to minorities...I thought that was the CIA's job.
Porsche' 20% along with the 18% owned by the state of Lower Saxony, makes Volkswagen bulletproof to takover under current German law. But the law itself is archaic and not likely to survive much longer. To me this is a win win investment. When Germany finally rids herself state and union influences of such investor unfriendly laws, Volkswagen will be recognized as a tremendously undervalued company. In the meantime Porsche has taken VW off the market, protecting her vital interests there. Porsche doesn't have 4 Billion in the petty cash drawer because they don't know how to handle money.
There is no substitute...but ok...a Ferrari I will accept
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