FOR THREE YEARS, Porsche has been battling to control Volkswagen, Europe's biggest auto company, and although the sports-car maker has amassed a big stake in its target, the war isn't over. - Porsche likens the story to that of David and Goliath. Industry insiders, however, describe it as a soap opera, featuring egotistical executives, feckless politicians and an internecine feud within the enormously wealthy German-Austrian Porsche-Piëch family. But it's really a high-stakes chess match, with many players, and individuals familiar with the combatants say the battle is as much personal as corporate. - At the moment, the strongest player seems to be Porsche, thanks to the European Union's rejection last October of the "VW law," which had given the German State of Lower Saxony, in which Volkswagen's Wolfsburg headquarters is located, the ability to block major strategic changes, such as job cuts or factory closings. And those actions are exactly what VW's powerful unions believe Porsche is contemplating. Under VW bylaws, Lower Saxony has veto power on major moves by virtue of its 20.3% stake in the auto maker, a position a state official has said it might boost to 25%, if necessary.
Porsche last week upped its stake in Volkswagen (U.S. ticker: VLKAY, Frankfurt ticker: VOW.Germany) to 35.1% from 30.6% -- and controls options that it says will take it over 50% by the end of this year. It has set up a holding company, Porsche Automobil Holding (PAH3.Germany) to oversee the two companies.
Much hinges on further court decisions on the VW law to come in the next six to 12 months . Should Porsche ultimately prevail, the lean machine of Stuttgart and its hard-charging, cigar-chomping CEO, Wendelin Wiedeking, 56, should be able to extract plenty of value out of VW over the long term, suggesting that Porsche's stock, which closed around 90 euros Friday in Germany -- about 50% under its 2007 high -- is perhaps 30% undervalued. (The traded stock is preferred and has no voting rights; all ordinary shares are held by the Porsche-Piëch families.)
IF PORSCHE LOSES IN COURT, Wiedeking could be hamstrung in trying to make changes at VW , even with his big stake.
On Sept. 12, union representatives on the VW supervisory board voted down Porsche's proposal to more closely integrate the companies, while Volkswagen workers marched in protest against a Porsche takeover.
The battle comes at a time when Porsche, historically a maker of pricey sports cars, is gearing up to introduce what, for it, is a radical model -- the four-door Panamera sedan, expected to be introduced next spring.
In the short term, Porsche's stock could suffer if the company doesn't prevail. So will VW's, which last week hit a record €305 before easing to €262 and is up more than 600% since 2005. VW has a stock-market value exceeding $125 billion, bigger than that of BMW, Daimler, Fiat and Renault combined. Porsche's market cap is about €16 billion ($22.3 billion). One factor boosting Volkswagen stock is that most of it is in the hands of Porsche, its allies and Lower Saxony, leaving an effective public float of probably less than 30% of the tradeable shares.
The struggle could also have wide repercussions in Germany, particularly in light of the surprising outcome of another recent tussle -- auto-parts producer Schaeffler Group's hostile bid for tire maker Continental, a deal that will create one of the world's biggest vehicle-parts suppliers. Like Porsche, Schaeffler is much smaller than its target, yet it has prevailed. A Porsche triumph could inspire more acquisitions. Even a company as big as Daimler is now the subject of occasional takeover rumors.
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