Volkswagen Plans IPO of Porsche to Ignite EV Shift Momentum

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(Bloomberg) — Volkswagen AG is preparing an initial public offering of Porsche, seeking a listing of its most profitable asset to help boost the parent’s valuation and fund the push into electric vehicles.

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Under a plan code-named “Phoenix,” the carmaker and Porsche Automobil Holding SE, the billionaire Porsche and Piech family’s main investment vehicle, have sketched out a framework that navigates VW’s convoluted structure. Investors could be offered about 25% of non-voting shares in the iconic sportscar maker while the family buys a minority blocking stake, according to people familiar with the deliberations.

The tentative listing, estimated to value the sportscar brand at as much as 85 billion euros ($96 billion) by Bloomberg Intelligence, would partly reverse a tumultuous takeover of Porsche more than a decade ago and signals the extent of the upheaval sweeping the industry.

While details and timing remain in flux, the IPO could happen in the second half of this year and might include a special dividend to help the Porsche and Piech family, who own 53% of VW voting shares, finance the transaction, said the people, who spoke on condition of anonymity.

A spokesman for VW declined to comment. The company’s preferred shares surged as much as 10% after the announcement Tuesday on a possible IPO outline.

Governance Tension

Going ahead will require walking a tightrope between key shareholders that own almost all of the group’s voting stock and external investors under VW’s complex governance structure. The owner family, the German state of Lower Saxony and Qatar together control about 90% of voting rights.

The tension would likely continue at a new listed company under the current plan. While external investors will own only non-voting shares, the Porsche and Piech owners will retain far-reaching influence through 25% of common stock with voting rights plus one share, according to two people familiar with the plans.

Europe’s biggest carmaker has been pushing for years to adopt a less centralized corporate structure to become more nimble and step up its challenge to Tesla Inc. Success has been modest. The IPO of Traton SE, VW’s truckmaking unit, fizzled amid internal ructions and a limited free float, while a plan to separate the Lamborghini supercar and Ducati motorcycle brands didn’t progress.

Volkswagen’s management and supervisory boards still have to sign off on the framework agreement with Porsche SE and a final decision hasn’t yet been made, the carmaker said.

What Bloomberg Intelligence Says:

Volkswagen has confirmed what we suspected for some time, that it’s in advanced talks for an IPO of its Porsche brand, which we value at 60-85 billion euros — based on a 55-70% discount to Ferrari’s EV/Ebitda — vs. VW’s market cap of just 112 billion euros. Porsche benefits from both its luxury appeal and an electrification edge, with an anticipated 40%-plus battery-electric-sales mix by 2025. VW trades on a lowly 2.1x 2023 EV/Ebitda, representing an 89% discount to Ferrari and 94% discount to Tesla, with a Porsche IPO likely to generate significant shareholder value.

— Michael Dean, BI automotive analyst

VW’s Porsche Worth $70 Billion If Driven Like a Ferrari: React

While VW Chief Executive Officer Herbert Diess appeared to pour cold water on a Porsche listing about a year ago, he’s under pressure to start catching up to Tesla. After a well-received presentation of VW’s accelerated EV plans in March last year and successful models like the Porsche Taycan, efforts have sputtered and its market valuation remains dwarfed by the U.S. EV leader.

Support for the push will be hard won even as industry momentum for bold moves is building. VW’s 20-member supervisory board is prone to convoluted decision-making. Worker representatives, who account for half the seats, are often aligned with the two officials from Lower Saxony to protect jobs. The sprawling Porsche-Piech clan, the biggest backer of CEO Diess, also needs to coalesce to greenlight major strategic overhauls.

Diess’s consideration of deep job cuts sparked backlash from unions late last year, putting the CEO on the defensive. In the end, VW agreed to a compromise that included a plan for an 800-million euro tech campus and pledge to build a new EV factory near its Wolfsburg headquarters.

“We think a Porsche IPO, which has been a hot topic of discussion for years, is now more of a possibility of actually happening than ever before,” RBC analyst Tom Narayan said in a note. “What is different now however is that the Porsche family is firmly behind it as we expect Porsche SE to be a buyer of a Porsche brand IPO.”

A plan to list Porsche chimes with deep restructurings in train elsewhere among traditional carmakers and suppliers. In the latest example, Ford Motor Co. is looking at ways to separate its electric-vehicle operation from its century-old legacy business to unlock value.

Going ahead would boost Europe’s flagging IPO market. Share sales have slowed dramatically this year, after a record-setting 2021. Steep market swings are deterring issuers as investor appetite has dried up amid concerns about geopolitical tensions in Europe as well as tightening monetary policy.

Many that have braved volatile markets including Norwegian oil and gas company Var Energi AS have had to settle for bottom-end IPO pricing and a subdued start to life on the public market. Portfolio managers have become more selective after the poor performance of last-year’s marquee listings and the shelving of several recent deals.

Funding Options

Separating Porsche could offer a new funding option for the group. VW largely relies on generating enough cash on its own or issue bonds. Its convoluted shareholder structure limits options to raise fresh equity capital like Tesla has done, without diluting shareholdings of key stakeholders that control about 90% of VW’s voting stock.

The two companies share a common history dating back to the late 1930s and have been formally tied together following a protracted battle for control. Porsche first sought to buy VW little more than a decade ago, before the audacious coup failed and the far bigger manufacturer turned the tables, taking control of the sportscar maker in 2009. A remnant from that acrimonious saga is Porsche Automobil Holding, which has a voting stake in VW of about 53%.

Porsche is the most iconic brand in VW’s stable and highly profitable, among other nameplates like Audi, Skoda and Bentley. Creating the multi-brand structure was the brainchild of Ferdinand Piech, the influential CEO and chairman of VW who engineered the Porsche takeover despite opposition from his cousin, Wolfgang Porsche. Piech passed away in 2019, aged 82.

(Updates with detail on special dividend in fourth paragraph.)

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