Porsche Takes a Controlling Interest in VW

[Yeo]

Porsche, whose speedy roadsters are synonymous with excitement and luxury, effectively claimed control on Tuesday of Volkswagen, born as the maker of the so-called people�s car and now Europe�s largest automaker.

Porsche moved to increase its stake in VW to just more than 35 percent (a controlling interest under German law), from 31 percent, amid rising tensions between the two companies, as well as within the Porsche family.

Ferdinand K. Pi�ch, the chairman of VW, is a cousin of Wolfgang Porsche, chairman of Porsche and a VW board member, but the two men seem to be on a collision course, even as their two companies grow closer together. Last week, Mr. Pi�ch skipped a crucial board meeting, giving the upper hand to Volkswagen employees who opposed Porsche�s attempts to further integrate the companies.

�Pi�ch effectively voted against his family, and the message is that there will be a war and we will see who is the winner,� said Ferdinand Dudenh�ffer, the director of the Center for Automotive Research in Gelsenkirchen, Germany.

By increasing its stake, Porsche wrote a new chapter in a tale that began three years ago, when it acquired a 20 percent stake. Since then, Porsche�s chief executive, Wendelin Wiedeking, has slowly asserted his smaller company�s control over Volkswagen, the automotive Goliath.

Now, VW�s unions fear that Porsche will push through aggressive efficiency moves and reject their demand for a pay raise. A union official declined to comment.

Mr. Pi�ch, 71, is a onetime chief engineer at Porsche who has spent the past few decades at VW and its Audi subsidiary. Observers say his concerns are retaining VW�s engineering prowess while resisting Porsche�s more profit-oriented approach � along with preserving his legacy.

While Porsche now has voting control of VW�s shares and has said it intends to raise its stake to more than 50 percent in the next few months, it may be premature to count Mr. Pi�ch out. In part, that is because he has an ally in the German state of Lower Saxony, which owns a 20 percent stake in VW. Under a special German law, Lower Saxony has veto power over the fate of the company, which is based in Wolfsburg, near the state capital, Hanover.

European Union regulators have challenged the so-called VW law, and the European Court of Justice ruled in October that it restricted the free flow of capital.

The German government is trying to modify the law in a bid to retain its ability to shield the company from hostile takeovers and protect jobs, but Porsche and the European Union would rather have it scrapped completely.

Mr. Dudenh�ffer and other auto analysts see a battle shaping up. On one side is Mr. Pi�ch, Lower Saxony and VW�s powerful employee unions, which want to preserve as much of VW�s independence as they can. On the other is Wolfgang Porsche and Mr. Wiedeking, his chief executive.

�Pi�ch wants to do his very best to keep VW independent from Wiedeking, and wants to be the deciding power at VW,� Mr. Dudenh�ffer said.

A spokesman for VW declined to comment. But in a statement, Mr. Wiedeking said: �Our goal continues to be to increase our stake in Volkswagen to more than 50 percent. Today�s step is a further milestone along this road.�

�We look forward to continuing and intensifying our cooperation with the managing board of Volkswagen, which is based on a spirit of mutual trust, and are hoping for a quick resolution of the conflict between the employee representatives of Porsche and VW,� he said.

Although Porsche has been steadily acquiring shares in VW since 2005, the milestone Tuesday is remarkable given that the sports car maker is acquiring a company many times its size.

Porsche produces roughly 100,000 cars a year, while VW sells about six million. And while Porsche has just 11,000 employees, VW�s work force totals more than 300,000.

But VW�s huge size gives Porsche more flexibility in production, while it collaborates on projects like building a new hybrid engine that could be shared by VW, Audi and Porsche. The new Porsche Panamera, a luxury sedan expected to be introduced in 2009, will feature a body built by VW in Hanover and assembled by Porsche in Leipzig.

Mr. Wiedeking and the Porsche company itself are known for highly efficient production � which frightens some VW unions � but the analyst Arndt Ellinghorst of Credit Suisse is skeptical that big job cuts are in store.

Indeed, at a time when American automakers like General Motors and Ford are fighting a wave of losses, Porsche remains one of the most profitable car companies in the world.

�It appears the unions are concerned about restructuring, about Porsche restructuring VW,� Mr. Ellinghorst said. �But Porsche wouldn�t shut down capacity and shift it to Eastern Europe. Porsche is a pro-German company.�

Whatever the outcome of the maneuvering among Porsche, Mr. Pi�ch, the European Union and Lower Saxony, the significance of the news Tuesday is that �Porsche is taking over VW, period,� according to Eric-Alain Michelis, an analyst with Soci�t� G�n�rale in Paris.

Noting how surprised most observers were by Mr. Pi�ch�s decision to skip the vote on Friday, Mr. Michelis said that by increasing its stake in VW now, �Porsche is saying we�re not as patient, and it�s an indication that Mr. Wiedeking wants to run the show.�

http://www.nytimes.com/2008/09/17/business/worldbusiness/17porsche.html?_r=1&dlbk&oref=slogin
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