Porsche Says it Plans to Amass a 20% Stake in Volkswagen

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Porsche announced on Sunday that it planned to amass a 20 percent stake in Volkswagen - a deal that would make the celebrated maker of sports cars Volkswagen's biggest shareholder and bring together the opposite ends of the German automotive spectrum.

Porsche said its investment was aimed at protecting a partner from a hostile takeover. Volkswagen builds much of Porsche's Cayenne sport utility vehicle, and the two recently announced a venture to produce hybrid gasoline-electric vehicles.

Volkswagen still symbolizes mass-market cars, but its long-term independence has been questioned because a German law that shields it from unwanted suitors has been challenged and is in danger of being struck down in a European court.

"Our planned investment is the strategic answer to this risk," the chief executive of Porsche, Wendelin Wiedeking, said in a statement. "We wish in this way to ensure the independence of the Volkswagen Group."

Volkswagen, which said it learned of the plan only over the weekend, offered a cautious endorsement. "We welcome Porsche's interest in a strategic position," a spokesman, Frank Gaube, said.

Even in the intertwined world of German business, the notion that one carmaker would invest heavily in a rival to fend off a hypothetical takeover has baffled some analysts. At its current market value, a 20 percent stake in Volkswagen is worth around 3.3 billion euros, or nearly $3.98 billion.

But the deal may be less about economic logic than history. Despite their starkly different images, the two companies share a common heritage in Ferdinand Porsche, the Austrian automotive engineer who designed the Beetle and whose son later started the sports car company.

Mr. Porsche's grandson, Ferdinand Pi�ch, is a former Volkswagen chief executive and still the chairman of its supervisory board. His family is the controlling shareholder of Porsche, from which it derives part of its multibillion-dollar fortune. Mr. Pi�ch, analysts said, is moving to reassert the family's influence at Volkswagen, the company his grandfather helped found.

"This is about Pi�ch's ambition to follow in his grandfather's footsteps," said Ferdinand Dudenh�ffer, the director of the Center for Automotive Research in Gelsenkirchen.

The timing is right, Mr. Dudenh�ffer said, since analysts think Volkswagen's major shareholder, the state of Lower Saxony, will sell its 18.2 percent stake in the next few years. "If Lower Saxony would sell the shares," he said, "it might offer to sell them to the Pi�ch family."

With a stake of close to 40 percent in the hands of Porsche and the Pi�ch family, and with Volkswagen owning 13 percent of its common shares, analysts said it would be all but takeover-proof.

Volkswagen's vulnerability to a hostile bid is a perennial theme in Germany, not least because the company has struggled with lackluster sales and collapsing profit.

A German statute, known as the Volkswagen law, prohibits any shareholder from owning more than 20 percent. The European Court of Justice is weighing a challenge to the law, and a decision is expected before the spring of 2007. If it were to be overturned, analysts said, nothing would stop an investor like Kirk Kerkorian or a group of hedge funds from taking over the company.

Speculation last week that Mr. Kerkorian was amassing a stake in Volkswagen drove its stock up 5.5 percent. Mr. Kerkorian once mounted a hostile takeover of Chrysler Corporation; he now has a stake in General Motors.

For its part, Porsche said the idea of the Volkswagen investment originated with its chief executive, Mr. Wiedeking, not with Mr. Pi�ch. Mr. Pi�ch could not be reached for comment.

"From our perspective, it's best for us to have a long-term continuing business partnership with VW," a spokesman for Porsche, Michael Baumann, said. "That is what we are trying to secure."

Porsche said the purchase would be financed internally and would not affect plans for new vehicles, like the Panamera, a sports coupe that Porsche recently announced it would develop.

Porsche defrayed the cost of the Cayenne by having Volkswagen build the frame at its factory in Bratislava, Slovakia. It has not announced plans to team with Volkswagen on the Panamera.

The company already owns just below 5 percent of Volkswagen's shares, the threshold for reporting to German regulators. Porsche's plan was reported earlier in the online edition of Der Spiegel.

If Porsche bought its shares on the open market, the investment would be more than 3 billion euros. But company executives said it was exploring other options, including a purchase of Volkswagen's own shares. Merrill Lynch is advising Porsche on the investment.

Analysts were stunned by Porsche's move, which they said was a radical departure for a traditionally conservative company.

"Porsche told us that they were going to invest back into the company rather than pay higher dividends," said Arndt Ellinghorst, an analyst at Dresdner Kleinwort Wasserstein in Frankfurt. "Now they're investing into one of the least profitable car companies in Europe."

For Volkswagen, the investment will likely bolster its shares. Analysts said they were not worried that Porsche would hinder the efforts of the company's two top executives, Bernd Pischetsrieder and Wolfgang Bernhard, to cut costs and overhaul the company's operations.

Even the German government put its imprimatur on the investment. "I am happy that with Porsche, a long-term, thinking investor is coming into Volkswagen," the economics minister, Wolfgang Clement, said in an interview with Berliner Zeitung.

The state of Lower Saxony also welcomed Porsche's move, though it said it had no plans to sell its stake.
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