by tebedam
TLDR: the Porsche family is getting full control of Porsche the company literally for free. This is the main reason for the IPO. The way the IPO is structured will hurt VW and gullible investors buying into this. VW and its long-term strategy are thrown into disarray.
TLDR (with light details):
- The Porsche family already owns a significant chunk of both VW and Porsche companies. But they want full control of the Porsche company.
- They ousted the CEO of VW on a pretext and forced the IPO that benefits only them.
- The family will get additional 25% of the Porsche, which will give them full control of the company.
- The family is not paying a market price for 25% stake. In fact, they are not paying at all, because they forced VW to pay a dividend from the IPO proceeds, which the family will get by being a shareholder of VW.
- Shares available to the public during the IPO are all non-voting.
Long story
The way the IPO is organized is a disgrace, and if the German government allows it to go through as is, I will have no faith in making long-term investments in German stocks anymore.
If this is legal under German laws, then I’m not buying. If this is illegal and they don’t do anything, I’m not buying either.
To understand what and why is happening you need a little context, so here it is.
The Porsche family lost control of the Porsche company during the 2008 financial crisis. They wanted to buy VW but ended up in a weird financial situation where they instead had to give up control of Porsche to VW but got a controlling voting stake in VW.
The ownership structure is complicated, but in a simplified form it looks like this:
The family -> Porsche Holdings -> VW company -> Porsche company
The IPO will make it look like this:
The family -> Porsche Holdings -> VW company (>50% of voting rights)
The family -> Porsche Holdings -> Porsche Company (>50% of voting rights)
The money flow is like this:
The family “buys” 25% of voting shares from VW below market price with no competition.
VW pays 50% of IPO proceeds as dividends.
The family gets its money back from VW in the form of dividends.
This IPO would be a disaster even during normal times. VW is losing its best cash cow, for half the price, and the price is below market rate. But it’s happening during one of the worst times for IPOs ever. The stocks are in a global downturn, hammered by inflation, rising rates, quantitative tightening, supply chain issues, and ongoing war in Ukraine, which amplified all of the above and added energy crisis on top of that. Germany is in the worst economic situation since the fall of the Berlin wall.
This is not the right time to IPO a luxurious brand. However, this is the best time for the family to get their favorite asset out of VW. From their perspective, the less money IPO makes, the better. This conflict of interests is as bad as it gets.
IPO shares available to the public will be useless non-voting shares for gullible investors, who do not understand what they are buying. Think SNAP or GOOG. But it gets worse.
Let’s remember for a moment, that VW was not a good company for a long while. It ended up in a “diesel gate” scandal, had to pay enormous fines, as well as to change its CEO. This turned out to be a blessing in disguise, because VW got a good new CEO, had to reinvent itself by becoming more environmentally friendly, and thus started an early transition into EVs.
VW is already a top seller of EVs in Europe and rapidly growing its market share. It has a vast portfolio of cars ranging all segments, from the cheapest economy cars to the most luxurious ones, of which Porsche is the main brand. Platforms within VW are interchangeable, they use the same tech across multiple brands to achieve synergy.
Now, if you take Porsche out, these plans are thrown into disarray. On top of that, both Porsche and VW will have the same CEO, answering to the same family. Which company do you think he will prioritize more when it comes to that?
What’s more, the transition to EVs was not going smooth already. There are issues with software, which VW was never good at historically. And the labor unions were very unhappy at the potential loss of jobs (because you need less jobs to make EVs). The family seized on this opportunity to oust the CEO under a pretext that the software was delayed, and the labor unions supported the change to get their job guarantees.
The labor unions now expect to keep their jobs, meaning VW will have to keep combustion engine factories operating for longer for no economical reason. This is good for workers, but a disaster for investors in VW. The family got their IPO, which is good for them, but also a disaster for investors. And the new CEO has no experience in building software whatsoever with no sound plans to address the problems.
The right change for VW would be to hire an experienced executive VP from one of the major tech companies in the US and improve their software development culture. There was no need to change their CEO, especially considering that VW was transitioning to EVs better than all of its competitors. But, oh well.
My positions:
I owned VW stock for a while and sold at ~2x profit after the war in Ukraine started but was planning to buy back later. Now, however, if the IPO goes through, I’m not touching this stock, or any other German stocks for that matter.