The tortoise has well and truly caught the hare. Volkswagen's ($5.58 billion) cash deal to buy the 50.1% of Porsche AG it doesn't already own nets the German auto giant full control of the luxury car maker at a knockdown price. Volkswagen has thus won a race begun in 2008 when Porsche launched an ill-fated bid to take it over. Investors in Porsche's listed preference shares, meanwhile, are left looking like also-rans.
Volkswagen acquired an option to buy the rest of Porsche AG by 2014 for €3.9 billion in 2009, when it first bought into the then-heavily indebted company. Volkswagen had been worried that exercising the option early would incur a tax liability of up to €1 billion. But with the deal billed as a restructuring, Volkswagen believes that charge won't apply. It is actually buying the Porsche operating company from listed holding company Porsche SE, which in turn remains the owner of a 50.7% stake in Volkswagen.
Volkswagen is paying a little more than the agreed option price. It will also now consolidate Porsche's €2.5 billion debt, thereby valuing half of Porsche at €7 billion. But the price takes into account two years of lost potential dividend payments to Porsche SE, and its share of €700 million of potential annual synergies. Moreover, Volkswagen will mark up its existing holding in Porsche by €9 billion, suggesting it sees the whole company's enterprise value at around €26 billion, according to Credit Suisse.
The heavy discount Volkswagen achieved is testament to its deal-making acumen in 2009, when the outlook for luxury car sales looked bleak. Porsche SE at least gets the benefit of finally wiping out debt taken on during its initial takeover attempt, leaving it with €3 billion of cash. Combined with its stake in Volkswagen, that implies a fair value of around €75 per share.
Porsche SE's preferred shareholders might have hoped to see some of that cash pile come back to them through a special dividend. But Porsche SE's ordinary shareholders—it is 90%-owned by the Piech and Porsche families—recently voted to allow the company to invest in a wide variety of sectors.
Preferred shareholders won't have any say over where the company chooses to splash the cash. Little wonder, then, that at €42 their shares now trade at a discount to fair value of more than 40%.
By ANDREW PEAPLE from The Wall Street Journal
