Volkswagen-Porsche war erupts as talks called off

Bloomberg

Volkswagen, Europe’s largest automaker, called off talks with Porsche about a merger less than two weeks after the sports-car manufacturer’s controlling families agreed to pursue a combination. "There is currently no atmosphere for constructive talks," Christine Ritz, a spokeswoman at Volkswagen, said on Sunday in a telephone interview.

The Porsche and Piech families, which together control half of Porsche, agreed May 6 to create an "integrated" carmaker that would put Porsche alongside VW brands including Skoda and Audi.

Talks to hash out details of a merger are on hold after VW Supervisory Board Chairman Ferdinand Piech said May 11 that VW wouldn’t help "solve" Porsche’s financial problem and that Porsche must trim its 9 billion euros ($12 billion) in net debt.

"War has erupted again between Volkswagen and Porsche," said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at the University of Duisburg-Essen. "Piech is behind that."

Porsche shares traded at 39.43 euros at noon yesterday in Frankfurt. The stock has slumped about 30 percent since May 6, cutting the carmaker’s market value to 6.9 billion euros. Volkswagen was trading at 216.17 euros.

Worker protest
About 8,000 workers at Porsche’s main Zuffenhausen factory and a research facility in Weissach near Stuttgart have been called to walk off their shifts yesterday morning, according to Michaela Klingler, a spokeswoman for Porsche’s works council. Speaking to reporters on May 11 in Sardinia, Italy, Piech said that Porsche Chief Executive Officer Wendelin Wiedeking and Chief Financial Officer Holger Haerter were partly responsible for the sports-car maker’s increasing debt.

Porsche owns about 51 percent of Volkswagen, whose automotive division had 10.7 billion euros in net cash as of March 31. Porsche had been accumulating Volkswagen shares since 2005 to protect ties to its largest supplier.

Porsche Supervisory Board Chairman Wolfgang Porsche was struggling to raise financing to boost the stake to 75 percent and had been at loggerheads with Piech about how to unite the carmakers.

The May 6 agreement between the families effectively put on hold Porsche’s plan to further bolster its stake in Volkswagen by acquiring VW shares.

The Porsche family is upset over Piech’s remarks and is concerned that they may hurt the value of the carmaker, Der Spiegel said on its Web site.

When asked whether Volkswagen would pay 11 billion euros for Porsche AG, the operating unit of Porsche SE, Piech said that amount is "definitely a few billion too high," according to the magazine.

Porsche must ensure "absolute transparency" in its talks on combining the carmakers, Volkswagen CEO Martin Winterkorn wrote in a letter to senior managers dated Sunday. "We must get a clear idea of the true state of affairs at Porsche," he wrote. "It’s in the interest of all concerned to ensure that there’s no threat to Volkswagen’s financial stability."

Volkswagen in no hurry, says chief executive
Winterkorn said he backed a decision by Bernd Osterloh, VW’s works council, to quit the talks with Porsche. "We will not allow anyone to pressurize us into taking precipitate action," Winterkorn wrote, adding that negotiations with Porsche require a "constructive" atmosphere. "This is not the case at the moment," the CEO wrote. "We’re not in any hurry."

The 72-year-old Piech is a grandson of Ferdinand Porsche, who founded the sports-car manufacturer and was Volkswagen’s first leader when the carmaker was set up under Adolf Hitler’s Nazi regime in the 1930s. In addition to leading the supervisory board at Volkswagen, where he was CEO for nine years until becoming chairman in 2002, Piech is a member of Porsche’s board.

Any agreement between Porsche and VW will require approval by Volkswagen’s home state of Lower Saxony, which has a right to veto decisions through its 20 percent stake in VW.

The automakers, worker representatives and Lower Saxony officials will decide on the new group’s structure over a four-week period, Porsche SE said May 8.

"Piech wants to form Volkswagen according to his own ideas and he also wants to give Porsche and CEO Wendelin Wiedeking the boot," Dudenhoeffer said.