Break Up VW And Double Its Stock Market Value – Report.
“VW has grown to a size and complexity that is too difficult to manage and too slow to navigate ; at a time when the industry is set to go through unprecedented transition,”
Breaking up the huge Volkswagen empire into separate companies like Audi, Porsche and its mass market brands would almost double its stock market value, said Evercore ISI.
In a report, the investment researcher pointed to recent successful spinoffs like Ferrari, Volvo and Jaguar Land Rover as an example for VW shareholders.
Evercore ISI made a compelling case for the breakup, but one thing is sure; unless the sun starts to rise in the west, it’s never going to happen. The politicians and unions which run VW are more interested in control than money.
The engineering workers union controls half the votes on VW’s ruling 20-seat supervisory board. The German state of Lower Saxony has two seats on the board too. This has led to a chronic lack of incisive action and profitability compared with companies like Toyota of Japan. And VW employs too many workers. In 2015, General Motors, with 215,000 employees, produced almost as many cars as VW with 600,000.
But Evercore ISI said if VW moved to a holding company structure with six separate listed entities – Audi, Porsche, VW mass market brands, trucks, mobility services, and financial services – the current capitalization would rocket.
“The combined market value could stand at €150 billion compared to the current VW market capitalization which stands at €68 billion. Post a 25% holding discount, we calculated €50 billion upside to €100 a share,” said Evercore ISI analyst Arndt Ellinghorst.
“VW has grown to a size and complexity that is too difficult to manage and too slow to navigate ; at a time when the industry is set to go through unprecedented transition,” Ellinghorst said.
“Have VW’s main stakeholders ever considered what a breakup might mean? We believe it would lead to increased profitability and growth at VW’s individual brands, each of which would be more accountable,” Ellinghorst said.
Ellinghorst said it would raise the value of Lower Saxony’s stake by €6 billion, and allow it to pursue important social policies.
“VW stands out with industry leading diseconomies of scale, recurring scandals and management-union infighting. From the outside, VW seems to be its own biggest enemy,” he said.
“Union leaders, Lower Saxony, the (Porsche) family (shareholders), and other stakeholders should be concerned. Investors recognize that the auto industry is facing disruption and in such an environment flexible and agile players will have an advantage over larger super-tankers,” he said.
Volkswagen is still reeling from the effect of the dieselgate scandal after it admitted cheating to defeat U.S. environmental rules which limited noxious emissions from diesel engines. This concerned around 500,000 diesel engines in the U.S. The scandal then moved on to the rest of the world with 11 million engines involved in cheating not only diesel emissions, but also fuel economy claims.
VW has allocated €22.6 billion to pay for fixing or buying back vehicles, fines and penalties arising from dieselgate. It could face further costs from law suits concerning its rigging of as many as 11 million diesels to cheat on emission tests.
Talk about VW slimming down started again recently when it was reported it was about to sell its Ducati motorcycle subsidiary to Harley-Davidson. Investors wonder if this could be the start of a major restructuring involving the selling of its hugely valuable truck assets.
VW’s truck business is said to be worth around €23 billion and would go a long way towards meeting the total damage done to the company from the dieselgate debacle.
VW owns Scania and MAN and last year bought a 16.6 per cent stake in Navistar for $256 million, said to be designed to open up the U.S. for the European brands. Scania is, next to Paccar, the most profitable truck maker in the world.