“In their operating business, Porsche and Volkswagen will now be able to leverage synergies at an earlier stage and cooperate more easily. Porsche SE, as the largest Volkswagen shareholder, will also benefit greatly from this,” said Porsche executive Matthias Müller.
Here’s what we can make of the recent announcement keeping in mind that we are anything but financial experts.
Last month we reported that Volkswagen would pay Porsche something like 4.5 billion euros, but that the Stuttgart-based sports car maker wouldn’t have to pay taxes on the transaction. We didn’t really know anything beyond that at the time, but a joint release by the two firms is shedding a little more light on the subject.
It looks like Porsche will end up taking in 4.46 billion euros from VW and absorb a single share in the company while giving up the 50.1 percent stake it holds in itself. By giving up its controlling stake, the consequence will be the same as if Volkswagen had exercised its put-and-call option, established as part the agreement from when it rescued Porsche in 2009, but without the tax penalties associated with that procedure.
When that happens, Volkswagen will have absorbed Porsche and will create the Integrated Automotive Group, but Porsche SE, the holdings branch of the company will remain intact, receiving the 4.46 billion euro payment. Porsche SE will also retain a 32.3 percent stake in Volkswagen, meaning it will still contribute to Porsche as an automaker. The cash payment by VW will then be used to pay off the company’s 2 billion euro debt. The remaining 2.46 billion will then be troughed into strategic equity investments.
“The accelerated implementation of the shared goal will make Porsche SE a financially strong holding company with attractive potential for increasing value added. We are creating clearly defined, sustainable structures and a solid outlook for Porsche SE’s future,” Müller said.
In short, Volkswagen found a way give Porsche the money to eliminate its debt without Porsche paying taxes by turning the payment into a business merger. The move should mean more streamlined interaction between the VW and Porsche brands, as well as improved financial health.