Porsche-VW merger raises sticky issues, analysts say

Frankfurt — German sports car maker Porsche and giant Volkswagen have unveiled sketchy plans for a long-awaited and well-received merger, but some experts say the deal still raises several sticky questions.

"There are more questions remaining than answers," NordLB bank analyst Frank Schwope told AFP Thursday after the two companies said they would forge a merged German car giant, amid changes shaking the industry worldwide.

"It’s not really clear how they will construct it," added Juergen Pieper from Metzler Bank.

Following a special meeting on Wednesday of the Porsche family in Salzburg, Austria, Porsche and VW gave themselves four weeks to agree on a tie up.

Porsche, which had been seeking to take control of Volkswagen, said in a statement that the decision came after weeks of "intensive talks."

Pieper said the deal "is a good fit" between Porsche, the world’s most profitable car maker, and VW, Europe’s biggest auto group and number two worldwide behind Toyota.

Porsche is to benefit from VW’s research and development and gain access to a vast auto parts purchasing network in addition to VW’s hefty estimated cash reserves of 10-11 billion euros (13.3-14.6 billion dollars).

That will help with the roughly nine billion euros in debt Porsche racked up trying to take over VW, a group that is 15 times bigger than itself.

On the other hand, "VW gets one of the best brands," Pieper said, along with "brilliant" managers who have built up a business "with double-digit profit margins."

The combined auto group would have 10 separate brands ranging from Audi, Volkswagen and Porsche in Germany to Czech maker Skoda, Seat in Spain, Lamborghini in Italy, Bentley in Britain and Bugatti.

Schwope warned however that wrapping up a deal meant negotiating "a possibly turbulent process ahead."

One of the biggest issues was how much of the new group each party would own.

Major shareholders now include the Porsche family in addition to that of Ferdinand Piech, the grandson of Porsche founder Ferdinand Porsche and head of VW’s supervisory board, and the German state of Lower Saxony, where VW is based.

A mooted capital increase of five billion euros would likely bring in a new major shareholder, with the Gulf state of Qatar frequently mentioned as a top candidate, along with neighbouring Abu Dhabi.

The Porsche family would probably have to give up full control over a company they have owned directly for more than 60 years, and which Schwobe described as "the family silver."

"Will they really do it," he asked. "It’s an emotional question."

Another "very tough question" according to auto expert Ferdinand Dudenhoeffer, is where the new company’s headquarters would be located.

Both Stuttgart, home to Porsche, and Wolfsburg, home to VW, would be loath to give up industrial icons, and Dudenhoeffer suggested that a third city, possibly Berlin, might be a way of getting around the problem.

He also thought a merger could ease at least temporarily a bitter rivalry between VW head Martin Winterkorn and Wendelin Wiedeking, the Porsche boss who had engineered its VW takeover bid and who all three analysts credited with the general plan presented on Wednesday.

"I think in the next two-three years we will have to get used to a situation where there is no king, but rather two crown princes, Winterkorn and Wiedeking," Dudenhoeffer said.

William Ickes/AFP/Expatica