- The Washington Times - Thursday, July 23, 2009

STUTTGART, Germany — The best thing Volkswagen AG can do when it carries through on its proposed merger with Porsche is this: Leave Porsche alone and reap the revenue from a glossy brand with loyal, rich customers, analysts say.

Having emerged Thursday atop a power struggle among members of the Piech and Porsche families, who control Porsche Autombil Holding SE, that cost Wendelin Wiedeking his job as Porsche chief executive, Volkswagen is left to gather the spoils, namely the marquee Porsche name that soon will be counted with Audi, Bentley and Lamborghini, already among Volkswagen’s stable of luxury brands.

“I don’t think Volkswagen will change it much, Porsche is such a brand,” Howard Wheeldon, senior strategist at BGC Partners told the Associated Press. “There’s huge value in just the brand; it’d be best to leave it alone.”

Volkswagen CEO Martin Winterkorn, who ran luxury brand Audi under VW ownership, said that is just what Europe’s biggest automaker by sales plans to do.

“Like Audi today, Porsche can also continue its independent development under the aegis of Volkswagen and preserve its own identity,” he said after announcing plans to put the luxury sports car maker under VW’s umbrella through a merger.

Porsche also saw its board agree to seek a capital increase of at least $7.1 billion and throw its weight behind talks with a Qatar investment fund.

“We welcome the involvement of the Qatar fund and assume that they will take 17 percent of Volkswagen shares from the options of Porsche SE, which will make them the third biggest shareholder in the VW/Porsche AG company,” said Christian Wulff, the governor of Lower Saxony, the German state where Volkswagen is based and which holds nearly 21 percent of the automaker.

For Porsche’s 10,000 workers — who long have prided themselves on the quality, respect and high prices fetched by the 911 sports car and Cayenne models, among others — that’s sure to be some welcome relief after weeks of back-and-forth and concern over the future of the company.

“The jobs are safe at Porsche, I promise you this,” said Uwe Hueck, the works council boss at Stuttgart-based Porsche. “Porsche AG will stay independent.”

The Porsche and Piech families also stand to gain now that Mr. Wiedeking, CEO since 1992, and Chief Financial Officer Holger Haerter have been dismissed, paying the price for what IHS Global Insight analyst Tim Urquhart called “their vaulting ambition in attempting the audacious takeover of Europe’s largest passenger-car maker.”

Mr. Wiedeking and Porsche built a 51 percent stake in Volkswagen but loaded the Porsche company with debt just as the economy turned sour.

Porsche tied up so many VW shares that, when traders needed shares in October to cover bets they had made against the stock, a so-called “short squeeze” briefly pushed VW shares so high that it was, briefly, the world’s most valuable company.

“Although the company made a huge paper profit gain on VW share gains last year, its bid to turn its majority stake of 50.76 percent into a domination stake of 75 percent stalled for lack of cash, with the credit crunch making it impossible to borrow the required amount on the capital markets,” Mr. Urquhart said.

Now Volkswagen is in the driver’s seat, and cash-strapped Porsche appears headed to wind up as one of its brands, along with such names as Lamborghini and Bentley.

The two companies already cooperate in the production of sport utility vehicles, and Mr. Winterkorn said that “Volkswagen and Porsche have excellent expertise and can use their resources together even better.”

VW and its chairman, Ferdinand Piech, had pushed for a deal to fold the lucrative luxury-car business into its portfolio, widening its range in anticipation of a recovery in the luxury market. Mr. Piech also is part of the family that controls Porsche.

“As a result, Ferdinand Piech, as is usually the case, has triumphed and seen off what he saw as a wasteful and hostile takeover, which would have given another management group control over a company which he managed directly for 10 years and which his family helped create,” Mr. Urquhart said. “Piech saw Wiedeking as an impetuous risk-taker who had designs on grabbing a disproportionate amount of power for himself.”

Still, Mr. Wiedeking, credited with rescuing Porsche in the early 1990s and turning it into a profit machine, is not leaving empty-handed.

Porsche said Mr. Wiedeking, whose contract was through 2012, would receive nearly $71 million as he leaves, far below the reports of $199 million or even $355 million that German media had speculated.

In a nod to the controversy such an amount is likely to create in Germany, Mr. Wiedeking said he would set up a “charitable organization” and seed it with half of his severance pay.

He will be replaced by Michael Macht, 48, who currently oversees production, while personnel chief Thomas Edig will serve as Mr. Macht’s deputy, Porsche’s board said.

Porsche said Mr. Haerter, 53, would receive $17.8 million, though both executives might see more compensation through other agreements or bonuses.

Willi Diez, director of the Institute for Automobile Research in Nuertingen-Geislingen, told Deutschlandradio that a merger definitely would benefit the families that control Porsche.

“In the end, both companies and both families want to keep their fortune and multiply it, and this will weld them together,” he said.

Matt Moore reported from Berlin. Associated Press writers George Frey in Frankfurt, Germany, and Kirsten Grieshaber and David Rising in Berlin contributed to this report.

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