Volkswagen and Porsche Take a Huge Risk With a Big Bet

Nothing stops Volkswagen (VLKAF) .

Not Russia’s energy war on the European Union. Moscow has decided to cut gas supplies to Europe before the cold autumn and winter months because of the countries’ support for Ukraine, which Moscow invaded on Feb. 24.

This energy crisis will undoubtedly cause household electricity bills to explode, which in turn is likely to further weaken the already slowing European economies.

Nor is the multibrand German automaker fazed by central banks’ unclear plans to fight sharp worldwide inflation.

Such geopolitical and macroeconomic issues tend to undermine the confidence of investors, who stay cautious rather than acquire risky assets — like company shares.

In such circumstances, companies often choose to delay investment projects and don’t embark on major deals.

Not here.

Porsche’s IPO Will Take Place in 4 Weeks

Volkswagen doesn’t seem perturbed by any of this, or even by its internal struggles that led to the dismissal of Chief Executive Herbert Diess in July.

Diess was succeeded by Oliver Blume, the boss of Porsche, which is the cash cow of the firm based in Wolfsburg, Germany.

The automaker has just confirmed its intention to give Porsche its independence through an initial public offering.

This IPO will take place in Frankfurt at the end of September or beginning of October, the company says.

Volkswagen reminds investors that the transaction is. “subject to further capital market developments.” It doesn’t elaborate.

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The “Board of Management and Supervisory Board aim for an IPO,” Volkswagen said in a statement you can find here.

Preferred shares will also be offered to retail investors in countries in Europe, an attempt to tap into Porsche’s loyal fan base.

Volkswagen also approved a 25%-plus-one-share stake in the ordinary shares of Porsche AG to be sold to Porsche SE. That would give the controlling Porsche and Piech families a blocking minority holding and bolster their push for a tighter leash on the carmaker.

“In the event of a successful IPO, Volkswagen AG will convene an extraordinary general meeting in December 2022 at which it will propose to its shareholders that a special dividend amounting to 49% of the total gross proceeds from the placement of the preferred shares and the sale of the ordinary shares be distributed to the shareholders at the beginning of 2023,” the company said.

Playing Catchup With Tesla

Investors expect a valuation of 60 billion euros to 85 billion euros ($59.4 billion to $84.1 billion). But some experts also point out that the valuations of other European luxury flagships, such as Ferrari (RACE) and Aston Martin (AMGDF) , have decreased a lot.

Ferrari’s market capitalization is currently at $35 billion. But Porsche produces more cars than Ferrari, which plays more on scarcity and exclusivity.

If the IPO were valued at 85 billion euros, it would be the biggest IPO in Germany and the biggest in Europe since 1999, according to Reuters.

Volskwagen’s eagerness to carry out the Porsche IPO also reflects the two brands’ race to catch up with Tesla (TSLA) in the market for electric vehicles.

VW hopes this transaction will bring it additional funds to speed its effort to offer more electric models and develop its own software.

The German manufacturer wants to devote 89 billion euros ($88.1 billion) to developing EVs over the next five years. The other ambition is to see sales of electric vehicles represent a quarter of the group’s total sales beginning in 2026.

Source: https://www.thestreet.com/technology/volkswagen-and-porsche-take-a-huge-risk-with-big-bet?puc=yahoo&cm_ven=YAHOO&yptr=yahoo