Shares of Porsche plunge as it begins to raise its stake in Volkswagen
September 26, 2005, 12:18 PM
FRANKFURT, Germany (AP) -- Porsche AG shares plunged 10 percent on Monday, a day after the luxury automaker said it planned to raise its stake in Volkswagen AG to about 20 percent to ward off any potential hostile takeovers.
Shares in Porsche, which had held less than 5 percent of VW, fell by as much as 11.3 percent before finishing the day at 607.64 euros ($731.05) in Frankfurt.
VW shares, which rose last week on talk that a large investor was building up a stake in the company, gained more than 1 percent before closing down 0.6 percent at 51.51 euros ($61.97).
Stuttgart-based Porsche said Sunday its move was aimed at securing ties between the two companies and warding off any future hostile takeover of Volkswagen by investors "who do not have the long-term interests of VW as their aim."
Porsche and VW, Europe's largest automaker, worked together to develop Porsche's Cayenne sport utility vehicle and Volkswagen's Touareg. They recently announced that they, along with Audi AG, were forming an alliance to develop hybrid engines.
A hostile takeover could arise if the European Court of Justice rules against a German law that effectively keeps any VW shareholder's voting rights at 20 percent.
Analysts were cool toward the move by Porsche, noting that it appeared to be a poor use of the company's excess cash.
"This strikes us as a lot of cash up front for a highly uncertain benefit: even were such a deal to happen, it would be unlikely to threaten existing joint ventures," said Stephen B. Cheetham, a European autos research analyst with Sanford C. Bernstein Ltd.
"The recent surge in VW is now explained, but this deal is depressing confirmation that the old ways of German capitalism die hard," Cheetham said.
Germany's financial watchdog, BaFin, said Monday it would examine the increase in value of VW shares last week ahead of Porsche's announcement. The Berlin-based agency said the investigation was routine and that no charges of wrongdoing had been leveled.
VW's management welcomed the move, as did the state of Lower Saxony -- VW's largest shareholder, with an 18 percent stake.
The automaker is in the midst of a cost-cutting drive aimed at shoring up its earnings amid criticism from investors that the Wolfsburg-based company is inefficiently run. VW said this month it will reduce its work force in Germany, complaining that its factories have "several thousand" surplus employees, despite rising demand for its cars.
The company has recently denied rumors that it was considering closing down its SEAT unit or planning to buy back some of its own shares. In addition to Spain-based SEAT, VW owns the Czech Republic's Skoda, Italy's Lamborghini and Bugatti, Britain's Bentley, and Germany's Audi.
Porsche, meanwhile, said earlier this month that its sales for the year ended in July were up 6.8 percent and that it had posted its 11th straight gain in profit.
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