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Wedding bells for VW, Porsche

Jul 09 2012 10:44 AFP

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Frankfurt - The road to success for German automakers, one of the key engines driving Europe's biggest economy, is a bumpy one and while Volkswagen and Porsche are tying the knot, Opel is fighting to survive.

The courtship between Europe's biggest auto group VW and its long-time partner, luxury sports carmaker Porsche, has not always been an easy one.

It has long been the dream of Ferdinand Piech, VW's supervisory board chief and patriarch of the Porsche family, to integrate the two businesses in a bid to overtake US giant General Motors as the world's number one.

But when Porsche first tried to swallow the much larger VW, it failed, and then when VW acquired 49.9% in Porsche in 2009 with a view to a full merger, the complex deal ran into numerous legal and tax hurdles.

Accordingly, it came as a surprise last week when the two announced they had finally found a way to bring the merger forward by two whole years, with the deal unlocking hundreds of millions of euros in untapped synergies.

Under the terms of the agreement, VW will buy the 50.1% in Porsche that it does not already own from holding company Porsche SE for €4.46bn plus one VW share.

The deal, which VW and Porsche say will generate €320m in economies of scale, is being structured in such a way that VW will not have to pay vast amounts of tax.

The fact that part of the payment is being made in a single VW share means the deal counts as a corporate reorganisation rather than a straightforward sale, therefore saving VW as much as €1.5bn in taxes.

At the end of the day, the operation will cost just over €100m, according to finance chief Hans Dieter Poetsch.

VW chief executive Martin Winterkorn said the merger will "benefit customers, employees and shareholders alike.

"The unique Porsche brand will now become an integral part of the Volkswagen Group. That is good for Volkswagen, good for Porsche and good for Germany as an industrial location," Winterkorn said.

"Combining their operating business will make Volkswagen and Porsche even stronger - both financially and strategically - going forward.

"We can now cooperate even more closely and jointly leverage new growth opportunities in the high-margin premium segment."

VW's brands currently include Volkswagen, Audi, Skoda, SEAT, Bentley, Bugatti and Scania and MAN trucks.

Ferdinand Dudenhoeffer, industry expert and head of the CAR Center for Automotive Research at at the University of Duisburg-Essen, said that with Porsche, Audi and Bugatti, VW will command a 40% share of the high-end car segment worldwide.

Porsche would enjoy economies of scale and also gain access to technologies developed by VW's other brands.

"Porsche will benefit, Volkwagen will benefit. The only ones who won't will be German taxpayers," Dudenhoeffer said.

While the merger will bring VW forward closer to its goal of becoming the world's biggest auto maker, another German manufacturer, Opel - owned by GM - is struggling to steer itself back to profit.

At the end of June, Opel's supervisory board approved deep restructuring, massive investment in the product range of the Opel and Vauxhall brands, and a new marketing strategy.

Material, development and production costs would all be cut and "better use made of synergies arising from the tie-up between GM and French partner PSA Peugeot Citroen," Opel said.

Opel is under pressure from GM to cut costs sd it suffers from high production costs and is vulnerable to the eurozone crisis since GM will not allow it to export outside Europe so as not to compete with its own brands.

Stefan Bratzel, auto industry expert at the University of Applied Sciences in Bergisch Gladbach, said the reorganisation was Opel's last chance but warned "it will be a few years yet before Opel is back on track."

Dudenhoeffer agreed, forecasting that Opel will not return to profit before 2015, "since demand in Europe will remain very weak in the next three years."

porsche  |  opel  |  volkswagen
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