L.A. Auto Show: Porsche acquired VW to save itself
This article was originally on a blog post platform and may be missing photos, graphics or links. See About archive blog posts.
Largely overlooked in the Detroit Big 3 death watch/three-ring circus has been one of the most incredible examples of clever stock trading in modern history. And it happened at a car company!
Last month, Porsche AG surprised the world by announcing it had acquired a nearly 43% stake in Volkswagen AG with an option to buy 32% more. Without anybody noticing, wee little Porsche, maker of scarcely 100,000 cars per year, had cornered a 75% position in VW, which cranks out nearly 6 million vehicles. And since nobody guessed how large Porsche’s position was beforehand, short sellers suddenly got caught with their pants down, driving VW stock into the ionosphere. VW shares quintupled, peaking at over 1,000 euros, and making VW, briefly, the most valuable company in the world.
Needless to say, Porsche found itself in the catbird seat, able to sell part of its position without having to cede control of the bigger carmaker. It was a great example of the business acumen of a company that has the highest profit margins in the world of cars.
How high? About 12% high, according to Klaus Berning, a member of Porsche’s board and head of sales and marketing for the company, who helped introduce Porsche’s new Boxter and Cayman models at the L.A. Auto Show on Wednesday. But the highlight of his speech was ...
the revelation that, incredibly, Porsche’s acquisition of VW isn’t about the money. Apparently it’s about saving Porsche. ‘Our VW strategy is part of protecting Porsche,’ said Berning. ‘It is our guarantee that Porsche will remain Porsche.’
The startling remark -- that without Goliath, David was imperiled -- largely fell on deaf ears because the audience was more concerned with the new double-clutch gearbox on display than, well, a multibillion-dollar acquisition that shook the financial world, or the fact that one of the company’s execs suggested that hugely profitable Porsche was somehow in trouble.
Approached afterward, Berning elaborated. Apparently, Porsche is not on the verge of bankruptcy. Instead, the acquisition would allow the smaller automaker to rely on VW’s considerable engineering capacity to help it develop a new hybrid drivetrain for its Cayenne SUV, as well as on other technological advances in development. ‘A company of our size needs a technological partner,’ he said. ‘To secure our projects, we had to make sure [VW] would not go to some sort of investment fund.
‘That we made money out of the hedges is a nice thing,’ Berning continued, ‘but the main objective was to get the technology.’
Let’s get this straight. Porsche, which made 3.6 billion euros last year from investments and 1 billion euros from selling cars, bought the profitable Volkswagen AG, one of the world’s top six producers of vehicles, and a regional powerhouse in Europe, South America and elsewhere, just because it can help it make a hybrid version of the Cayenne, only about 10,000 of which (without the hybrid option) have sold in the U.S. this year?
As the old saw goes, when someone says it’s not about the money, it’s about the money.
--Ken Bensinger