porsche running out of options....

Dave dave.eaton at clear.net.nz
Wed Jul 8 12:35:35 PDT 2009

piech still has the cards & the mojo it seems.  from the wire

'03 rs6
'04 allroad tdi

LONDON (Reuters) -- Porsche may own a lot of options over Volkswagen AG
shares. But the German sports car maker appears to have few alternatives
when it comes to financing its own stretched balance sheet.

In theory, Porsche could use its 51 percent stake in VW to ease the
pressure. But its value is heavily tied to the value of the stake. A partial
solution might do more harm than good.Porsche has been wrestling with its
extended financial position since the start of the year. It owes 10.75
billion euros ($15 billion) to banks. The debt was built up while assembling
the VW stake. Its creditors can demand repayment next year. More pressingly
it owes VW 700 million euros, which is due for repayment in September.

Porsche doesn't have the cash on hand to repay this money. And it is hard to
see its creditors rolling over their loans forever. After all, the market
for luxury sports cars is in freefall. Porsche's U.S. sales fell 67 percent
in June.

Porsche has two big assets -- the car company and its VW stake. The car
company is worth 6 billion to 8 billion euros and the stake is valued at
about 37 billion euros. A glance at this latter figure might make you think
Porsche's problem has an easy solution - it should just sell some VW
shares.High-risk game, but there is a snag. Porsche currently controls
roughly 70 percent of VW -- the 51 percent direct stake and a further 20
percent under option. Together with the state of Lower Saxony -- which
controls another 20 percent -- it has roughly 90 percent of the issued
ordinary shares. This has squeezed the market and supports the share price
at nearly 230 euros -- roughly three times what most analysts believe it
would trade at were the squeeze to be lifted.  Were Porsche to start
dribbling out shares to meet its liabilities, the share price could fall
sharply back to this "fair value." At 70 euros a share, the stake would be
worth just 10.5 billion euros -- less than the debt Porsche took on to
acquire it.  Porsche can't therefore "half-solve" the problem. It needs a
solution that fixes all its problems.

Since the beginning of the year it has had two options to achieve this. One
involves merging the business with VW in a way that would leave the
underlying equity holders of Porsche with a substantial stake in VW. The
problem with this is that VW seems reluctant to make a deal. It claims it is
uncomfortable about the extent of Porsche's liabilities. Rather than a full
merger, there have been reports it would like to cherry pick Porsche's
assets -- notably a 49 percent in its sports car business for 3 billion to 4
billion euros. But this would not necessarily solve Porsche's financial
problems. And if it continued to flounder, VW would then be in a position to
drive an even harder bargain.
Qatar to the rescue? The alternative would be for Porsche to raise money
first in order to strengthen its negotiating position. For months it has
been suggesting that it can do this. Porsche is still banking on the Qataris
riding to its rescue by buying a large stake. The problem is that they may
have to put up a significant amount of cash -- and that might end up
diluting the Porsche and Piech families that control Porsche.

Achieving agreement on this looks pretty tough. Porsche Chairman Wolfgang
Porsche has a tense relationship with his cousin, Ferdinand Piech, who is
also VW chairman. The two are in a struggle for control of the family firm.
Either side has the ability to block a capital increase. So whether or not
the Qataris are willing to help, it requires the existing investors first to
agree on the way forward.In the absence of any deal Porsche stumbles on
looking for some one to rescue it from this difficult situation. The German
government agency KfW has turned down the automaker's request for an
emergency loan. The longer this continues, the more likely it is that VW
will force it to eat large quantities of humble pie.

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