“The Smartest Guys have now left the room,” notes Max Warburton, the Bernstein analyst who brought us the Porsche/Volkswagen Fruit Machine in October last year.
The reckless idiocy of that VW takeover plan, pursued in stealth through the options market in Germany, has ended with Porsche itself on the block. CEO Wendelin Wiedeking and CFO Holger Härter have been forced out, albeit with gold-encrusted bin liners. But what’s left still defies conventional valuation analysis.
Porsche is now planning to raise at least €5bn and seal an unquantified investment from Qatar, whereby “the ultimate goal is to lay the foundations for creating an integrated car manufacturing company from Porsche SE and Volkswagen AG”. But now that the takeover game has been reversed, Warburton is wondering whether the VW management and its state shareholder Lower Saxony will be able to explain the price they eventually pay for Porsche:
We’re not convinced that Porsche really is “home and dry” after these developments. There’s still no evidence that it has a deal to sell, or transfer, its options over c.20% of VW to Qatar — note press stories over the weekend suggesting that Qatar may take only 10% of VW… There’s still no clarity on what its real debt position now is (note a press story this weekend in Focus, a German magazine, suggesting that Porsche’s real debt position is c.€14bn, versus the €9bn it last reported and €10bn that we assume). The purchase of core Porsche has not yet been formally agreed to by Lower Saxony, as far as we understand. The capital raising by Porsche may need to be much larger than the figure of “at least €5bn” stated by Porsche.
A key question for the Bernstein man is whether VW actually ends up paying a takeover premium to acquire its own earnings.
At issue is the Porsche Cayenne – a hugely successful project that wouldn’t have happened without VW capital.
The Cayenne is manufactured by VW in Bratislava, with Porsche then fitting the Cayenne S and Cayenne Turbo engines at its own facility at Leipzip, while the Cayenne V6 and Cayenne diesels arrive from VW all but complete.
According to Warburton, Porsche is buying Cayennes for just €22,000 per unit and then selling these on to customers at up to €90,000 a pop – a wildly profitable arrangement. In so doing, the analyst reckons VW is “gifting” Porsche about half its EBIT:
We believe that of Porsche’s peak EBIT of €1.4bn, Cayenne generated about 50%, 911 about 40% and Boxster/Cayman just 10%. In fact, the low price points of Boxster suggest that while it makes a gross margin (and cash contribution), it may well be EBIT loss making. What VW will buy if it acquires Porsche’s operating business is a small assembly plant at Zuffenhausen, Stuttgart, capable of building 911s and engines, a screwdriver plant at Leipzig, a distribution network, an engineering consultancy and a fantastic automotive brand.
Related links:
Porsche deal ends family feud over car stakes – FT
Porsche – FT Lex