Sunday, June 24, 2012

(BN) Porsche Mulls Energy Trading to Prepare for Life After 911: Cars

Porsche SE, the holding company controlling a majority stake in Volkswagen AG (VOW) after a botched takeover attempt four years ago, will probably soon be investing more in energy than in sports cars.

Porsche SE shareholders will vote today on changes in the Stuttgart, Germany-based company's charter as it closes in on finalizing the sale of the Porsche car-making unit to VW. A favorable vote would allow the holding company to invest in materials for the auto industry, real estate and energy trading.

"The holding is preparing itself for future opportunities," said Frank Schwope, an analyst with NordLB in Hanover, Germany. "It is certainly possible that Porsche SE's commodity trading business will in the future support VW's car production."

Without new investments, Porsche SE would be reduced to managing 50.7 percent of Volkswagen common shares after the sale of the Porsche car brand. The deal, which cleared an important hurdle earlier this month, would cap a takeover saga that divided the heirs of company founder Ferdinand Porsche, creator of the VW Beetle.

If VW exercises options to buy the 50.1 percent of the sports-car unit it doesn't already own, Porsche SE could have about 2.5 billion euros ($3.1 billion) in cash after deducting debt. The company is slated to get about 570 million euros in dividends from VW next year, according to Bloomberg data.

U.S. Lawsuits

The sale of the Porsche car business, which also makes the Cayenne sport-utility vehicle and Panamera four-door coupe, is part of a 2009 agreement to integrate the companies. The original plan to merge VW and Porsche SE was called off in September because of legal tangles. Since then, Martin Winterkorn, who is the chief executive officer of both VW and Porsche SE, has been mulling alternatives, including buying the rest of the Porsche brand to fold into VW.

Investors are suing Porsche SE in the U.S. and Germany, accusing the company of misleading them about plans to take control of Volkswagen in 2008. There are five suits pending at a court in Braunschweig, Germany, with plaintiffs seeking a total of more than 4 billion euros in damages. A hearing in some of the German cases is scheduled for June 27. Porsche SE has denied the allegations.

The legal risks and the uncertainty over Porsche SE's future with the sale of the car business held up by a potential tax burden of 1 billion euros have weighed on the shares. Over the past 12 months, the stock has fallen 22 percent, compared with an 8 percent decline for VW.

Cash Potential

One issue has been resolved. German authorities determined that VW's purchase of the sports-car maker may not be subject to taxes, people familiar with the matter said on June 11. Volkswagen, which already owns 49.9 percent of the Porsche auto business, can exercise options to buy the rest from Nov. 15 for 3.9 billion euros.

That cash inflow would give Porsche SE a war chest for investments. Net debt totaled 1.51 billion euros at the end of March. It received 331 million euros in dividends from Volkswagen in April. Porsche plans to pay 232 million euros in dividends to common and preferred shareholders after today's meeting.

To potentially take advantage of the opportunities, Porsche SE wants its owners, chiefly the Porsche and Piech families, which hold 90 percent of the common stock, to allow it to invest in new business fields, including renewable energies and auto materials. VW bought an 8.2 percent stake in SGL Carbon SE, vying for control of the company with Bayerische Motoren Werke AG to secure access to carbon fiber, which can reduce vehicle weight and their improve fuel efficiency.

Porsche SE's investment proposal hasn't been warmly received by investors in the company's listed preferred shares, which don't have voting rights.

Family Feud

"If the Porsche family wants to invest in these areas, they should do it privately," Arndt Ellinghorst, a London-based analyst with Credit Suisse. "The dividends from the VW holdings should be forwarded to the shareholders. The option to invest in such a wide range of fields is definitely not in the interest of Porsche SE's shareholders."

Porsche SE spokesman Wolfgang Glabus declined to comment on strategy ahead of the shareholders meeting.

The company's 2008 effort to take over Volkswagen, which makes more cars in a week than the sports-car maker does in a year, split the controlling family. Ferdinand Piech, VW's chairman, crossed his cousin Wolfgang Porsche to thwart the plan, which ultimately fell apart after Porsche's debt rose to more than 10 billion euros in the midst of the financial crisis.

Piech, 75, the former VW CEO who was elected to a third term as chairman in April, has since solidified control of Volkswagen. His wife, Ursula, took a seat on the Wolfsburg, Germany-based company's supervisory board earlier this year. In April, VW agreed to acquire Italian motorcycle maker Ducati, fulfilling Piech's vision of a company with a range spanning from two-wheelers to 50-ton trucks.

Still, the adjustment to the scope of Porsche's business doesn't change the fact the company's fortunes rest with VW's car business, said Juergen Meyer, a fund manager with SEB Asset Management in Frankfurt.

"Porsche SE's charter changes have as little significance to shareholders as the acquisition of Ducati," said Meyer. Porsche is his fourth-largest holding.

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