Frankfurt - Now that Porsche has confirmed it will go ahead with the takeover of Volkswagen attention is turning to whether 50% and one share will be enough.
Analysts have long said gaining majority control of Europe's largest carmaker would make the most economic sense if Porsche could also get its hands on Volkswagen's cash flows through a so-called domination and profit transfer agreement that usually requires owning 75 percent in a company.
But due to historical peculiarities at Volkswagen, the German state Lower Saxony can potentially throw a wrench in any such plans as second largest shareholder even though it has just 20% of the votes - a strategic stake Lower Saxony said it will not sell since it helps to protect 82 000 jobs in the state alone at VW.
Nonetheless, a weekend report in Germany's second biggest news magazine touched off a new round of speculation after Focus wrote, without citing sources, that Porsche plans eventually to raise its Volkswagen stake to 75% in order to approve a domination agreement at a shareholder meeting.
Focus also reported that Porsche aimed to gain more influence by sending Chairman Wolfgang Porsche and fellow supervisory board member Hans Michel Piech, the brother of VW Chairman and former CEO Ferdinand Piech, to the VW supervisory board at the Volkswagen annual meeting on April 24.
Both companies declined to comment on the report.
Raising its voting interest in VW to a majority from the current 31% would normally cost Porsche about €10bn at the current market price, but Porsche finance chief Holger Haerter has secured options that are expected to effectively reduce its takeover bill dramatically.
Hypothetically, were Porsche to up its stake by another 25%, push through a domination agreement at the AGM and then offer minority investors in both share classes cash to buy them out as German law usually stipulates, it could cost Porsche in total about a further €23bn.
Easy to finance
Beyond gaining access to the full profits of a subsidiary, parent companies often view domination agreements as critical to creating greater efficiency in achieving business plans and collaboration synergies with a unit, as well as improving knowledge transfers between the two managements, so it could be well worth it to Porsche.
It could also finance the purchase, since Porsche recently borrowed €10bn currently parked in risk-free assets it could easily liquidate, and the company could raise a further €10bn from an authorization to increase its capital.
Apart from the vast amount of cash the company would have to shell out for this, Credit Suisse analyst Arndt Ellinghorst was skeptical whether the family owners of Porsche not connected to the Piech clan led by the VW Chairman would be in favor of such a plan.
"Porsche would also be fully exposed to all VW risks, which the Porsche family intends to avoid in our view," he wrote last week.
Unless Porsche brokered some major deal with Lower Saxony allowing it to retain enough influence within Volkswagen to safeguard its strategic interests, it is unlikely the state would accept a domination agreement that entitles it to a fixed annual payment, similar to a permanently flat dividend.
One way or the other, it is unlikely that Porsche will control over 50% of the votes in VW by the time of the AGM late in April, since management can only acquire the majority once antitrust authorities approve the deal, which Porsche and legal experts expect to take several months.
And it might even be too late for Porsche when the next scheduled AGM rolls around in 2009, even if the company were to raise its voting stake in Volkswagen to 75%.
By then, the German federal government is expected to have passed a new Volkswagen Law based on a current draft proposal from the justice ministry that continues to provide for an 80 percent approval threshold for key decisions, effectively granting Lower Saxony a blocking minority.
Only if the supervisory board were to invite shareholders to an extraordinary meeting, could Porsche theoretically try to strike with a possible domination agreement, assuming that VW's own Articles of Association do not offer Lower Saxony a blocking minority as well.
Some clarity may emerge once Volkswagen publishes its AGM invitation on Thursday, in which Porsche and Lower Saxony may have tabled proposals to be discussed at the meeting.