Germanys Auto Smackdown – US-FOREX.US
Things between Porsche and Volkswagen are getting messier and this could undermine both companies in the long run. On Monday Volkswagen denied reports that it had presented Porsche an ultimatum to accept its proposal for a merger of the two companies, after Porsche management had accused its rival of “extortion.”"Ultimatums do not belong in the 21st century,” Wolfgang Porsche
, Porsche’s chairman said. “We hope very much in the interest of the common goals that its authors regain their calm and will pursue their proposals in internal talks and not via headlines.” Though Volkswagen
denied the reports of an ultimatum, analysts said a long-time animosity between the two companies could affect them both.”Both companies need to find a solution quickly in order to continue on the good operating track,” said Christian Aust, an analyst with Unicredit Research. “If this situation remains the same, it will impair management’s ability to turn to the operating business, the nucleus of both companies.” Analysts said that Volkswagen’s claim that there is no ultimatum is at least consistent with the company’s story so far: Volkswagen has always mainatined that it doesn’t want to merge with Porsche before it has reduced its debt and has offered more transparency about its exposure to the options market.Of the two, Porsche has much more to lose. While Volkswagen boasted 10.5 billion in cash reserves at the end of last year, Porsche is struggling under a debt burden of 15.5 billion as a result of its ambitious plan to build up an additional indirect stake of around 25% in Volkswagen, which it revealed late last year. Tensions between the two surfaced after Der Spiegel magazine’s website claimed over the weekend that Volkswagen had set Porsche a deadline of Monday to agree to a merger plan, or otherwise pay back a 596 million loan.
The plan put to Porsche would see Volkswagen take a 49.9% stake in the luxury carmaker before the Qatar Investment Authority, a third investor, acquired Porsche’s Volkswagen shares, according to Der Spiegel. The combined entity would be 40% owned by the Porsche and Piech families, with the Qataris taking 15% and another sovereign wealth fund picking up 5%. Some 20% would be held by the state of Lower Saxony, a key investor in Volkswagen.This is not the first time tension takes over the relationship between the two companies. The two carmakers are chaired by cousins Ferdinand Piech and Wolfgang Porsche and have been beset with managerial in-fighting and family tensions for years. Both companies trace their origins to Ferdinand Porsche, the creator of the Volkswagen Beetle. Both men are grandsons of Ferdinand Porsche.