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Porsche gets nod to take majority stake in VW

Europe could see a new automobile and truck empire emerge after Porsche got clearance from its board Monday to take a majority stake in Volkswagen.
/ Source: The Associated Press

Europe could see a new automobile and truck empire emerge after Porsche got clearance from its board Monday to take a majority stake in Volkswagen — just as VW said it would amass a controlling interest in Swedish truckmaker Scania.

The moves could put Porsche Automobil Holding SE — which owns Porsche AG and a nearly 31 percent stake in Volkswagen AG — in a position to also absorb a new commercial truck giant combining Scania with German truckmaker MAN AG, in which Volkswagen holds 29.9 percent.

Analysts said both deals boiled down to making money — lots of it.

Porsche has been steadily raising its stake in Volkswagen for more than a year and won a significant victory last year when the European Union's highest court ruled that the German government had to remove a cap on voting rights at VW.

Porsche has not said when it would resume building its holdings in Volkswagen, only that it was now free to do so, and has said it does not plan to fully merge the companies. But the approval Porsche SE's supervisory board granted Monday for the company to raise its stake in opens up a realm of possibilities.

"Volkswagen has announced that they're taking a majority share of Scania. Next they could upgrade their stake in MAN to a majority stake, merge the two companies into a Volkswagen Commercial AG and sell that to Porsche SE," said Christoph Stuermer, an auto analyst with Global Insight.

"Then they could hand back to Porsche ... or to their stock owners, a special dividend from the revenues of that sale."

Holding company Porsche SE came into being after the sports car maker boosted its stake in VW to nearly 31 percent last year. Since the European court ruling, speculation had swirled over when Porsche actually might move to take a majority.

"The reviews by the regulatory authorities are expected to take several months," Porsche said in a statement. "As soon as the requisite clearances have been obtained, Porsche SE can acquire the majority of the shares in Volkswagen."

It added that "it is not planned to merge the two companies."

"Our aim is to create one of the strongest and most innovative automobile alliances in the world, which is able to measure up to the increased international competition," Porsche Chief Executive Wendelin Wiedeking said.

Wiedeking has said that owning a majority stake would help Porsche work with VW — whose brands include Audi, Skoda, Seat, Lamborghini, Bentley and Bugatti — in developing new models, engines and other components.

Analysts also say Porsche having a dominant and controlling stake in Volkswagen could help improve VW's weak showing in the U.S. — a key market for Porsche.

The next largest shareholder in VW is the German state of Lower Saxony, where the company's headquarters is located, which holds just more than 20 percent. That stake, along with what Porsche holds, means VW can afford not to worry about a foreign takeover.

Whatever uncertainty remains about Porsche's plans for Volkswagen, VW seemed certain of its plans for Scania, agreeing to pay at least $2.8 billion to buy key stakes in the Swedish truckmaker from Investor AB and the Wallenberg Foundations.

That deal could clear the road for new talks about merging Scania with German rival MAN AG, which had made a failed hostile bid worth 10.3 billion euros to acquire its rival. MAN abandoned that bid in early 2007 amid fierce resistance from Scania and its key shareholders.

But Volkswagen tried to dampen hopes about a merger between MAN and Scania right away.

"We are pragmatic people, which means that yes, of course we have recognized there could be some more potential in any combination, but does it make sense now to deal with any structures?" VW Chief Financial Officer Hans Dieter Poetsch said at a news conference in Sweden.

"We don't believe so. ... Now first of all, let's digest the step we are undertaking and let's make the best out of it."

Were such a tie-up to happen, however, a combined MAN-Scania coupled with VW's own commercial trucks unit would easily overshadow rivals like Volvo AB and Daimler AG as Europe's biggest truck maker.

That could benefit a Porsche that held the majority of shares in Volkswagen, Stuermer said, since any net profits would flow back into Porsche SE's coffers in addition to solid results from VW that are already helping Porsche.

Volkswagen posted a 50 percent rise in 2007 net profit to 4.1 billion euros ($6.2 billion) last Friday, helped by record sales of nearly 6.2 million cars worldwide that lifted revenue 4 percent to 108.9 billion euros ($165.5 billion).

Both of the moves Porsche and VW announced Monday mark a stunning achievement for Ferdinand Piech, the dominant shareholder in Porsche who is also the chairman of the supervisory boards of both Volkswagen and MAN.

It was Piech's grandfather, Wolfgang Porsche, who designed the first Beetle and founded the company whose sports cars are found in the garages of the rich.

Porsche said Monday that Piech resigned from the steering committee of the company's supervisory board, but the position remained in the family. He was replaced by his brother, Hans Michel Piech.