A German solution for VW

The acquisition, estimated to be worth around EUR3.3bn, will prevent a hostile takeover by foreign hedge funds, which had been anticipated by analysts after the somewhat mysterious three-year high of VW’s share price last week.

The deal was accepted with relief by Europe’s largest motoring company, which faces massive losses in the United States, big problems in China and high labour costs at home.

The state of Lower Saxony owns 18.2 per cent of VW. Together with Porsche’s 20 per cent and VW’s own share of 13.1 per cent, there would be a solid majority of 51.3 per cent for keeping the VW Empire unassailable (apart from direct VW brands: Audi, Skoda, Seat and Bentley).

Porsche CEO Wendelin Wiedeking described the “German solution” to VW’s problems as an essential pre-condition for a stable development of Volkswagen AG at a time of increasing competition particularly from South East Asia. Both companies have co-operated closely for many decades.

Professor Ferdinand Porsche, the founder of the company, designed the legendary Volkswagen “Beatle”, the “People’s Car”, shortly before the Second World War, which in the 1950ies and 1960ies helped to create Germany’s “Wirtschaftswunder” (economic miracle).

Today, VW not only supplies a large portion of Porsche’s car components, but also helps manufacturing the company’s Cayenne SUV. Both firms are jointly developing a petrol / electrical hybrid engine, which is in urgent need after VW had dozed away in this field for far too long.

Porsche with an annual turnover of EUR6.36bn, 76,000 luxury cars sold and a profit before tax of EUR1.088bn (VW figures: turnover EUR88.9bn, 5.14mn vehicles sold, profit before tax EUR1.099bn) can easily finance the deal from it cash deposit.

Porsche’s subsidiary Porsche Middle East & Africa, headquartered in Dubai since 1999, operates in 15 countries from Saudi-Arabia to South Africa. In the business year 2004/2005, more than 3,800 vehicles were sold in the region. Particularly popular in the region is the cross-country Cayenne.