Two’s company

Sept. 25: Porsche, maker of the Boxster sports car, said it plans to buy 20 per cent of Volkswagen’s common shares to prevent a takeover of Europe’s largest carmaker.

Porsche will pay for the stake in Volkswagen out of existing capital, the Stuttgart, Germany-based company said in a statement. The investment would be worth 3.3 billion euros ($4 billion), based on the current price of the shares.

Porsche and Volkswagen already co-operate on developing products such as sports-utility vehicles, and the two companies have family links as well. A report that billionaire investor Kirk Kerkorian might buy a holding in Volkswagen made its shares rise the most in almost a year on September 22.

The investment is intended to prevent “a hostile takeover of Volkswagen,” Porsche said in the statement. “Volkswagen has become not only an important development partner, but also a key supplier for about 30 per cent of unit sales.”

Porsche’s Cayenne sports-utility vehicle is manufactured partially at Volkswagen Bratislava, the Slovakia plant that also produces VW’s Touareg SUV. The two companies said on September 12 they would co-operate to develop hybrid versions of the two SUVs. Volkswagen supervisory board chairman Ferdinand Piech belongs to the family that controls Porsche. Piech is the grandson of Ferdinand Porsche.

“The move can be justified as it is in both companies’ best interest that they are able to operate independently,” said Michael Rachor, a Munich-based fund manager at Activest Investment GmbH, which oversees $69 billion in assets, including shares of the two automakers.

“Porsche is buying into a company that is cheaply valued at the moment,” Rachor said. “We have to see what Porsche is going to pay. Initially, it will be negative for the Porsche share price.” Porsche’s shares have advanced 44 per cent this year, giving the company a market value of 11.9 billion euros.

Porsche chief executive Wendelin Wiedeking, 53, introduced new models last year to win buyers and reach a target of selling 100,000 vehicles annually as early as 2007.

Volkswagen, led by chief executive Bernd Pischetsrieder, is cutting costs to restore growth in profits, which have fallen for the past three consecutive years. VW shares have gained 56 per cent this year.

Home run

In India, the largest European carmaker’s plan to set up base in Andhra Pradesh ran into a speedbreaker when the now-sacked executive, Helmuth Schsuter, swindled the state’s share of contribution to the project by floating a dubious outfit ? Vashisht Wahan ? with his associates.

Early this month, the Andhra government refused Volkswagen's offer to return Rs 11 crore, allegedly pocketed by Schuster. The state is more keen on the project.

“We have declined to accept the money. We are more interested in seeing that Volkswagen sets up its car plant here,” chief minister Y.S. Rajasekhara Reddy said after meeting the Volkswagen special envoy, Frank Elbe.

Porsche, which made its entry into India in the middle of last year, has tied up with Sheryan Motors for selling luxury cars in Mumbai.

Cayenne, Boxster and Carrera are some of the models it is already offering in India at prices ranging from Rs 50 lakh to Rs 75 lakh. Despite a high import duty of 104 per cent to import the completely built units (CBUs), Porsche does not have an Indian subsidiary.