VW adds Porsche to its stable

Volkswagen is bringing the prestigious sports-car maker into its impressive line-up. On July 23, Porsche announced the departure of its chief executive, Wendelin Wiedeking, and its chief financial officer, Holger Harter. The German maker of sports cars thus succumbed to what had appeared inevitable since May, when it called off its improbable attempt to take over Volkswagen, 15 times its size. The departures of both men will pave the way for a merger, but one very much on VW's terms. Porsche, which under Wiedeking became the highest-margin producer in the car industry, will now be fully integrated into the VW Group, joining seven other car brands: VW, Audi, Skoda, Seat, Bentley, Lamborghini and Bugatti. For VW's chairman, 72-year-old Ferdinand Piech, who is also a major shareholder in Porsche, it will have been a moment to savour. As recently as late last year, Wiedeking appeared on course to oust Piech and complete the acquisition of VW, the fruition of an audacious plan conceived by Harter as long ago as 2005. The hard-charging Wiedeking had come to see Piech as an obstacle in his path and the arch-representative of the old ways of doing things at VW. These included cosy relationships with the unions and the state of Lower Saxony, which has a veto on important decisions thanks to a 20 per cent stake and the archaic "VW Law". Porsche triggered a sensational squeeze on short sellers in October when it was slow to admit it had raised its stake in VW voting shares to 42.6 per cent while acquiring a further 31.5 per cent in the form of secured options. For a time, VW was the most valuable company in the world. A month later Wiedeking unveiled profits that exceeded revenue thanks to the appreciation of EUR6.8 billion ($12 billion) in the value of its stake in VW. He declared that with the help of a EUR10 billion credit line to realise its options, Porsche would press for "dominant control" of the larger company. That proved to be the high point of Wiedeking's vaulting ambition. Although Porsche increased its holding in VW to 50.8 per cent in January, it could do so only by almost tripling its net debt to EUR9 billion at just the moment when its car sales were going into free fall and the credit markets were shutting up shop. Perhaps if Porsche had managed to get the VW Law overturned, everything might still have worked out for Wiedeking. He would then have been able to exploit Porsche's anticipated 75 per cent stake in VW to pay down the debt with the help of the bigger company's EUR11 billion cash pile. But at the prompting of Christian Wulff, Lower Saxony's Premier and a fellow Christian Democrat, German Chancellor Angela Merkel risked the wrath of the European Commission by refusing to end the state's blocking minority. On May 6, the warring Porsche and Piech families, which own all the voting stock of the holding company that controls Porsche, agreed to merge the two car makers. The game was all but up. As Piech gloated, Wiedeking and Harter made a last desperate bid to salvage something from the wreckage of their plans. Their hopes rested on selling a substantial stake in Porsche to a Qatari sovereign-wealth fund and then negotiating with VW from a position of greater strength. However, the Qataris were reluctant to become involved in the feud between the families and had their eye on a substantial shareholding in the merged group. They insisted they would invest only once the parties had come to terms. For Wiedeking and Harter that meant one thing: a dignified exit. A statement from Porsche said they saw their departure "as a significant contribution to the appeasement of the situation and to support the forming of an integrated car manufacturing company". Not too many tears should be shed for the pair, who last year earned more than EUR100 million between them. For Porsche, it is a sad end to 78 years of proud independence.