After years of largely ignoring investor pleas to unlock value, Volkswagen AG finally pulled the trigger late Monday on an initial public offering of its very profitable Porsche AG sportscar unit.
Although VW can still hit the brakes if it gets cold feet — the board’s commitment to a listing by October is conditional on “further capital market developments” — it doesn’t seem like the company’s power brokers are in a mood to back down.
The Porsche and Piech families who control a majority of VW’s voting shares have a strong interest in tapping the accelerator. And from the perspective of external VW investors, a suboptimal IPO is still better than no listing at all.
VW’s confidence partly reflects the considerable attractions of the Porsche brand. Bankers — many of whom probably have a 911 or electric Taycan in their garage — have lined up sufficient pre-orders from institutions and family offices at a valuation of between 60 billion and 85 billion euros ($84.8 billion), Bloomberg reported last month. Involving retail investors, as is reportedly under consideration, is a sensible idea to gin up additional excitement and increase liquidity in the shares.
The purported valuation suggests the problematic deal structure and governance will be ignored in the excitement to grab a slice of an iconic and very cash-generative business.
An IPO was only possible thanks to a hard-won deal between VW’s powerful interest groups: the Porsche and Piech families, the trade unions and the state of Lower Saxony (which owns 20% of VW voting shares). Who knows when the political stars would align again?
The Porsche and Piech family holding gets an exclusive right to purchase Porsche voting shares, whereas outsiders will only be offered non-voting stock. VW will kick out half the proceeds as a special dividend, helping the families fund their investment, while replenishing Lower Saxony’s coffers. Meanwhile, German workers get a 2,000-euro bonus for their assent.
But if VW shies away now, it might not get another shot at a listing for a while. Capital market conditions are unlikely to be any better next year, when Europe will probably be mired in recession and struggling to keep the lights on. Listing Porsche gives VW a second path to raise capital, should that ever become necessary.
One also shouldn’t forget that maximizing Porsche’s IPO value isn’t necessarily the priority. The Porsche and Piech families benefit from an initial lower valuation that makes it cheaper for them to acquire shares.
Indeed, this transaction isn’t so much about freeing Porsche from VW’s clutches, but rather restoring family control over a beloved asset.
Until 2008, the Porsche and Piech families owned half of Porsche (and 100% of the voting rights) but squandered that inheritance with a near disastrous attempt to takeover the much larger VW. The post financial-crisis denouement saw VW fully acquire Porsche for around 8 billion euros and left the families with a 16% economic interest in VW (the Porsche SE family holding owns around 32% of VW, and half of Porsche SE belongs to institutions).
This was a very bad trade from the families’ perspective. Porsche’s profit has surged in the past decade as wealthy customers snapped up its sports utility vehicles and warmed to its electrification strategy (the Taycan outsells the 911). Meanwhile, Ferrari NV’s 2015 stock market listing showed investors would award a premium valuation to luxury car brands with heaps of racing heritage.
Though the Porsche and Piech clans are hardly on the breadline, they’d be a lot richer now had they steered clear of VW. If there’s one group you shouldn’t seek advice from on timing a major transaction, it’s them.
More From Bloomberg Opinion on the Porsche IPO
• Finally, Volkswagen Sees the Logic of a Porsche IPO
• Porsche IPO Wants Your Money, Not Your Opinions
• Why Volkswagen Buyers Get a Lamborghini for Free
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies in Europe. Previously, he was a reporter for the Financial Times.
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