VW-Porsche Move Closer To Merger.
Estimate Of Porsche Value Varies By Up To €4 billion.
Cayenne-VW Sweetheart Deal Made Much Money For Porsche.
Some of the uncertainty has been removed about the future of Volkswagen and Porsche as they move closer together, but there are still plenty of questions to answer; try this one – if VW is to merge with Porsche, just how much is Porsche worth?
Valuations by investment bankers vary widely. Most valuations fall around €8 billion. Nomura International reckons it is much more – close to €12 billion.
Max Warburton, analyst with Bernstein Research, reckons the low figure might be way too high because it ignores a significant fact about Porsche’s profitability; about half of it is actually generated by VW because of the deal under which it makes Cayenne luxury SUVs for Porsche. Bernstein also worries about the level of Porsche debt, which German press reports say might be up to €14 billion compared with €9 billion last reported by Porsche. Bernstein and others estimate Porsche debt at €10 billion.
“We estimate that half of Porsche’s peak profit was “gifted” from VW – thanks to VW building the Cayenne and selling it to Porsche on favourable terms. Is VW really going to pay twice for profit it has already generated?” said Warburton in a report.
Warburton, quoting figures from a Porsche document in 2007, said VW sold Cayennes it made for Porsche on the production line it also makes VW Touaregs and Audi Q7s, for €22,000, which it then sold on for upwards of €90,000.
Cayenne generated 50 per cent of Porsche profit
“We believe that of Porsche’s peak EBIT (profit before interest and tax) of €1.4 billion in 2006, Cayenne generated about 50 per cent, 911 about 40 per cent and Boxster/Cayman just 10 per cent,” said Warburton.
Porsche would only have the 911 and Boxster, were it not for VW’s support. It could not possibly have built the Cayenne alone and the project – and its extraordinary margins – are arguably subsidised by VW, Warburton said.
Porsche’s plan to buy VW – 60 times bigger in terms of output and 30 times bigger measured by staff – foundered on the rocks of the credit crunch.
Luxury sports-car maker Porsche had built up a stake which with options would stretch close to 75 per cent of VW. It was unable to reach this figure, which would have enabled it grab the company’s cash-flow and profits.
Porsche CEO Wendelin Wiedeking has fallen on his sword, after building up the company by a bold new product strategy, and an almost mythical manipulation of complicated foreign currency swaps. These opaque financial instruments for a while generated more profits than the cars – the Boxster, Cayman, 911, Cayenne and the new Panamera sedan, about to be launched on world markets with a bit of help from VW.
Qatar is believed to be investing €5 billion in Porsche to help fix its finances. According to the Wall Street Journal’s Heard on the Street column, this means new VW-Porsche will be owned 51 per cent by the Piech-Porsche families, 17 per cent by Qatar, and 20 per cent by the German state of Lower Saxony.
The companies say they will decide on the capital structure of the new company by August 13.
According to the Financial Times’ Lex column, this defeat for Wiedeking is in fact a big plus for the families.
“The common view is that Mr Wiedeking’s departure is a defeat for Porsche, now saddled with €10 billion of debt. But this ignores the broader interests of the Porsche family that
a) still controls the sports car maker, which owns 51 per cent of VW, plus options over another 20 per cent and
b) includes VW’s own chairman, Ferdinand Porsche, who wants to leave his family an extraordinary legacy, a recombined Porsche VW,” Lex said.
Nomura International said Wiedeking’s departure appears to have removed the final obstacle to an integrated Porsche and Volkswagen. The value of Porsche is much more than €8 billion, it said.
“Recent press reports indicate Volkswagen may value Porsche AG at a mere €8 billion. We believe this is at the very low end of the valuation range one could apply to these industrial assets. We calculate a fair value closer to €12 billion,” said Nomura analyst Jeremie Papin.
Neil Winton – July 29, 2009