Volkswagen AG VWAGY, on Sep 5, announced that it would float its celebrated sports car maker, Porsche Automobil Holding SE POAHY, in what could be one of Europe’s largest initial public offering (IPO). The IPO marks a further step in the occasionally fraught relationship the two auto leaders share. Volkswagen intends to plan the IPO at the end of September or the beginning of October this year, subject to capital market conditions.
As part of the preparation for the listing, Porsche’s stock has been split into 50% ordinary shares and 50% nonvoting preferred stock, Volkswagen noted.
It has decided to list Porsche on the Frankfurt Stock Exchange and offer 25% of preferred stock to private investors through the IPO. Porsche is expected to value between 60 billion euros and 85 billion euros ($60 billion and $85 billion).
The Porsche family heirs, who enjoy a majority stake in VWAGY, will buy 25% plus one shares of Porsche AG, or voting stock, through their listed family investment fund, Porsche SE. With the listed sale and the acquisition of Porsche voting stock, the billionaire Porsche and Piech clan can regain direct influence over its one-time family enterprise, almost 13 years after it was forced to sell the sports-car business to Volkswagen. More than a decade ago, Porsche tried to take over the much-larger Volkswagen but failed due to a lack of funding during the financial crisis.
In 2009, Volkswagen bought 49.9% of Porsche SE’s sports car business, Porsche AG, and in 2012, it brought the remaining part. Now Porsche once again can wield its control over major company decisions.
Porsche SE has agreed to purchase the shares at the IPO price plus a 7.5% premium.
Through the IPO, Volkswagen and Porsche aim to replace a supposed domination agreement that transfers profit and losses to the parent by the end of the year with a cooperation agreement.
The IPO is crucial as it comes at a time when European stocks are staggering amid very high inflation rates and a spiraling energy crisis in the continent due to the Russia-Ukraine standoff. At such crossroads, the announced IPO is believed to test investors’ confidence.
The Qatar Investment Authority declared its intention to acquire 4.99% of Porsche’s preferred stock, thus becoming a cornerstone investor.
Porsche’s status and reputation as a luxury brand enable it to bump up prices, making it a cash-spinner for the Volkswagen Group. Porsche’s operating profit jumped 22% in the first half of this year while Volkswagen registered an 8% fall. The IPO would thus be a significant step for Volkswagen to pump up funds to fuel its ambitious EV plans.
Volkswagen will continue to hold the remainder of Porsche’s stock. If the IPO is successful, 49% of its proceeds will be distributed to its shareholders in the form of a special dividend, likely to be paid at the beginning of 2023.
The company also plans to offer Porsche’s preferred shares to retail investors in countries, including Germany, Austria, Switzerland, France, Spain and Italy.
It is undeniable that present market conditions are quite unfavorable and volatile for stock debut, and so there are certain doubts that weigh on the chances of the IPO’s success. Moreover, the structuring of the IPO has raised eyebrows as investors opine that only the nonvoting shares sold to the public could make it difficult for Volkswagen to churn out dollars for the sports car maker. There are added concerns that insiders will continue to flex control over the company at the expense of private investors.
Amid such precarious situations, all eyes will be on the much-awaited IPO, and it is for time to decide on the outcome.
Shares of Volkswagen have declined 46.6% over the past year compared with its industry’s 34.8% fall.
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Zacks Rank & Key Picks
VWAGY carries a Zacks Rank #3 (Hold), currently. Better-ranked players in the auto space include BorgWarner BWA and LCI Industries LCII, each carrying a Zacks Rank #2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
BorgWarner has an expected earnings growth rate of 2.9% for the current year. The Zacks Consensus Estimate for current-year earnings has been revised 0.7% upward in the past 30 days.
BorgWarner’s earnings beat the Zacks Consensus Estimate in all the trailing four quarters. BWA pulled off a trailing four-quarter earnings surprise of 29.45%, on average. The stock has declined 14.2% in the past year.
LCI Industries has an expected earnings growth rate of 68.1% for the current year. The Zacks Consensus Estimate for current-year earnings has remained constant in the past 30 days.
LCI Industries’ earnings beat the Zacks Consensus Estimate in all the trailing four quarters. LCII pulled off a trailing four-quarter earnings surprise of 26.48%, on average. The stock has declined 16.6% over the past year.
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