Porsche to bid for Volkswagen After increasing stake-Proton Opportunity??

By Chad Thomas and Jeremy van Loon-Bloomberg.com
March 24 (Bloomberg) -- Porsche AG, the world's most profitable carmaker, plans to raise its stake in Volkswagen AG to 31 percent, solidifying its control and forcing it to make an offer for the rest of Europe's largest carmaker.
Porsche, based in Stuttgart, said today it will offer 100.92 euros a share, the minimum allowed under German takeover law and 17 percent less than yesterday's close, which valued the company at 42.7 billion euros ($56.7 billion).
The company doesn't want a majority stake, said Frank Gaube, a Porsche spokesman. ``We want to be able to act, to increase our stake when it suits us,'' said Gaube. ``We don't want to be pushed.'' Under German law, an investor must make a takeover offer when a holding in a company reaches 30 percent.
Ferdinand Piech, whose family controls Porsche and whose grandfather started up Volkswagen in the 1930s under Adolf Hitler, has increased his control over Volkswagen since Porsche bought a stake a year and a half ago. A combination would realize the Porsche family's goal of uniting two carmakers their relatives began and would be the largest takeover ever in the industry.
``These are the best capitalists in the industry and they don't want to pay more than they have to,'' said Adam Jonas, an analyst at Morgan Stanley in London.
Porsche Stake
The company's supervisory board today authorized the sports- car maker to increase its holding to 31 percent from 27.3 percent on March 26, Gaube said.
Porsche, the maker of the 911 sports car, bought into Volkswagen in September 2005, saying it wanted to protect its partnership with its largest supplier. Porsche has steadily increased its influence, installing Chief Executive Officer Wendelin Wiedeking and Porsche Chief Financial Officer Holger Haerter on the supervisory board.
``Porsche will be able to instill its philosophy of strong focus on margins and profitability on the Volkswagen group,'' said Stephen Pope, an analyst at Cantor Fitzgerald in London with a ``buy'' rating on Volkswagen shares.
A credit facility to finance the takeover has been arranged by ABN Amro Bank NV, Barclays Capital, Merrill Lynch International, UBS Ltd. and Commerzbank AG, Porsche said.
Porsche said in a statement today that its offer for the common shares reflects the fact that the share price has more than doubled since Porsche first purchased a stake. Porsche said German financial regulators will set the minimum price for Volkswagen's preference shares. Porsche holds an option to increase its stake to 31 percent.
Buyout Offers
Shares of Volkswagen rose 6.90 euros to 117.70 euros in trading yesterday, while Porsche rose 21.56 euros to 1114.93 euros.
Porsche, once having made the minimum legal bid to all shareholders, is no longer required by law to present further buyout offers to all stakeholders should the company choose to increase the stake later, the company said.
A month ago, Porsche won a victory at the European Court of Justice, which moved to eliminate a law protecting Volkswagen from a takeover. Porsche is ``confident'' that the Volkswagen Law will be struck down, Gaube said.
An advocate general at the Luxembourg-based court European Court of Justice Feb. 13 recommended scrapping a 47-year-old German law protecting Volkswagen from a takeover because it ``restricts the free movement of capital.'' The EU court, expected to rule within the next three months, follows the recommendations in most cases.
Lower Saxony
The so-called Volkswagen Law caps shareholders' voting rights at 20 percent regardless of the size of the stake. Porsche, which supports abolishing the law, now has the same voting rights at Volkswagen as Lower Saxony, which owns 20.5 percent. Eliminating the law would give Porsche more say in decisions than Lower Saxony.
Christian Wulff, premier of Lower Saxony, said today in a text message Volkswagen benefits from having two stable shareholders who have a ``shared vision for Volkswagen.'' He made no reference to selling the state's holding.
Piech, a former Volkswagen CEO, reached an agreement last month with the German state of Lower Saxony, Volkswagen's second- largest shareholder, to remain chairman for another five-year term after he received the backing of the 10 labor representatives on the 20-member board. Piech, 69, was previously set to step down next month after shareholder opposition to his dual roles.
Piech's Reign
Piech has steadily consolidated his power at Volkswagen. In November, he helped orchestrate the ouster of Chief Executive Officer Bernd Pischetsrieder in favor of Martin Winterkorn, a long-time Piech protégé. The European Union's highest court has moved closer to striking down a law protecting Volkswagen from takeovers, a ruling that would increase Porsche's power.
Piech became Volkswagen CEO in 1993 and saved the carmaker from bankruptcy by trimming labor expenses and introducing common platforms for the model lines to cut costs. Investments in luxury models, including the Phaeton car and the Bugatti and Lamborghini brands, never helped profit. Volkswagen stock dropped 39 percent in the last four years of Piech's tenure as chief executive, which ended in April 2002.
The Piech and Porsche families are among the wealthiest in Germany, with most of their fortunes derived from stakes in Porsche, the carmaker with the industry's highest profit margins.
Holding Company
During the past 1 1/2 years, Piech has helped forge an alliance between Porsche and Wolfsburg-based Volkswagen. He worked for Volkswagen for 30 years and has been chairman of the supervisory board since 2002. He is a member of Porsche's supervisory board.
Volkswagen is Porsche's largest supplier. The two companies build the Porsche Cayenne, Volkswagen Touareg and Audi Q7 sport- utility vehicles at Volkswagen's plant in Slovakia. Volkswagen will build the body for Porsche's planned Panamera four-door model at its Hanover, Germany, factory.
A combined entity would be run as a holding company based in the Stuttgart area, with Porsche's carmaking business becoming a wholly owned subsidiary. The new company will be converted into a European stock corporation, or Societas Europaea.
The holding company would have a supervisory board, similar to an American board, with 12 members. Currently, Volkswagen's board has 20 members, with half the seats held by labor leaders.
Volkswagen welcomes Porsche's decision to increase its holding, the carmaker said in an e-mailed statement today.
``A stabile shareholder structure is important to the long- term oriented automobile business,'' CEO Winterkorn said in the statement.