Weakened Markets Spur Reports That Consolidation Is A Must.
BMW/Mercedes A Favoured Option, Mercedes-VW Has Support.
It sometimes appears that rumours about takeovers and mergers are so unlikely that they are the result of someone throwing the names of all the car companies into a hat, then simply drawing out two.
The headline “Mercedes will buy Porsche” seemed to fall into that category, although if someone suggested a year ago that Fiat might merge with Opel and Chrysler they would have been led off to the funny farm. These desperate economic times mean that the unthinkable might become the normal.
So the story in German Manager Magazin that Mercedes was thinking about investing in Porsche needed to be explored. It might just be true.
Commerzbank analyst Daniel Schwarz reckons that an agreement for Qatar to take a stake in Porsche is much more likely, and wondered if the report might have been designed to focus the minds of the would-be investors.
Schwarz did see some logic in the idea though.
“Despite DaimlerChrysler being a prominent example of failed M&A, we would not deny the industrial logic of such a step given rising technology costs,” Schwarz said.
Credit Suisse analyst Arndt Ellinghorst, noting that Daimler hadn’t denied talks with Porsche, said it is essential that the car business must change, but not in this particular way. Ellinghorst thinks a Daimler tie-up with VW or BMW makes much more sense.
“We regard industry consolidation as a must in order to deal with deteriorating business fundamentals such as higher environmental costs, failing support from financial services and ageing customer structure – fewer miles driven, smaller cars,” he said.
Business model broken
“The fact that Daimler is in talks with different industry peers indicates two things in our view. The industry can’t continue with business as usual – to be harsh – the business model is broken. And Daimler is willing to take an active part in consolidation. From a pure rational standpoint, it has to be welcome that Daimler seeks alliances in order to escape the spiral of rising expenditures/falling revenue per unit. But even if teaming up with VW might be the right strategy, potentially buying a stake in Porsche could be the wrong method,” Ellinghorst said.
Porsche has a 51 per cent stake in VW.
Ellinghorst thinks Daimler could easily afford to take a 25 per cent blocking minority stake in Porsche, which would cost about €1 billion, and compared to the deal with Qatar would bring industrial logic, not least given VW’s truck interests.
“Daimler would be interested in synergies with VW and not the Porsche core operation, which is too small in order to justify an investment. However if Daimler is seen as Porsche’s white knight, VW might be more reluctant to cooperate with Daimler in future. From a scale argument, Daimler would benefit more from VW than vice-versa. We would argue that the route to accessing industrial synergies with VW goes via Volkswagen rather than Porsche,” Ellinghorst said.
Daimler should look to BMW for a deal.
“In our view, a business link between Daimler and BMW would create a superior balance of power between the partners. Unlike VW/Daimler, both parties would benefit to a similar degree,” he said.
Neil Winton – July 1, 2009