Written by / Zhang Ou
Editor/ Zhang Linyu
Design / Shi Yuchao
Source/WSJ/Financial Times by Stephen Wilmot/Joe Miller
On February 22, local time, the long-boiled Porsche IPO rumors were finally confirmed - Volkswagen said that it and its majority shareholder Porsche Holdings (Porsche SE) are in deep negotiations on the initial public offering of Porsche AG. Analysts expect Porsche's standalone value to be as high as 100 billion euros.
The two sides have now reached a framework agreement, and Volkswagen told shareholders in a regulatory document: "The content of this framework agreement and whether to conclude it is still inconclusive." It depends on the boards of directors of both companies, and also on whether the possibility of a Porsche IPO will continue to be studied. ”
Just confirming the negotiations quickly helped Volkswagen's stock reverse its previous losses caused by the broader market's malaise, and trading volume rose more than 9 percent after the news was released.
Volkswagen CEO Herbert Diess stressed that Porsche's performance is unique. FT montage/EPA-EFE/AFP/Getty
"Fast money" drive
Porsche has a growing profitable business with high profit margins, high global brand awareness and a solid roadmap. Porsche CEO Oliver Blume is keen to keep the cash-generating petrol model and stated last year that "Porsche will always supply the internal combustion engine".
As a result, almost only Porsche can maintain a profit margin of more than 15% among traditional car manufacturers and increase revenue while accelerating the entry into the era of electrification.
According to Volkswagen's interim earnings report, in the first nine months of 2021, Porsche generated a pre-tax gain of 3.4 billion euros, accounting for about 34% of the profit of the entire Volkswagen Group, with an operating margin of 16%. Porsche sold a record 301915 vehicles for the full year 2021, with Volkswagen's entire automotive division selling 8.9 million vehicles last year.
The discussion of Porsche's IPO once again confirms that public offerings are undoubtedly one of the key ways to seek capital injection in response to the electrification transformation of car companies. Porsche's listing will provide the Volkswagen Group with a large amount of cash to fund the bottomless investments it needs to develop electric vehicles, develop new technologies such as self-driving cars, and support new battery manufacturing initiatives.
Under the influence of Tesla's $886 billion market valuation, traditional automakers have sought to transform and promote their electric vehicle businesses and new technologies to persuade investors to raise their stock prices.
Porsche is listed separately as a sub-brand of an automotive group, which is not the first time in the entire automotive industry.
Back in 2015, Ferrari, an Italian sports car maker owned by Chrysler, was successfully listed, making its debut on the New York Stock Exchange at $52 and currently trading at $220.
Volvo Cars, a Swedish automaker controlled by China Geely Group, was listed in Sweden separately at SEK 53 (RMB35.5) in October 2021 and is now trading at around 64 kronor (RMB43), up 21% from its IPO price. Volvo also became one of the largest IPOs in Europe in 2021, with a market capitalization of more than $22 billion.
The former Daimler AG split in two in December 2021 and conducted an IPO for Daimler Trucks AG. Daimler Group changed its name to Mercedes-Benz Group to provide investors with a more direct path to invest in their most popular luxury cars. Mercedes-Benz shares are up about 9 percent this year to a market capitalization of $81 billion, while Daimler Trucks is worth nearly $25 billion.
2021 Porsche Taycan
Another power grab in the shadows
The Porsche IPO will likely become one of the largest in German history. But the prospect of Porsche going public could still be overshadowed by Volkswagen's board, which is rife with rivalries and conflicts of interest between large union factions, Lower Saxony, Volkswagen's big employer, and Porsche's heirs.
Analysts say Volkswagen needs to retain at least 75 percent of porsche shares to maintain control of the brand's large cash flow.
Porsche's shares will be divided equally between voting common and non-voting preferred shares, after which 25% of the shares (half common and half preferred) will be circulated at an expected valuation of up to €80 billion to €90 billion for the entire business.
As early as 2009, Porsche and Volkswagen launched a months of "acquisition and anti-acquisition" drama, which ended with Porsche SE holding 53.3% of Volkswagen's common shares (31.4% subscribed shares) in the Porsche family, which is the largest single shareholder of the Volkswagen Group.
And the Porsche SE may also act. People close to the family said they were considering selling part of their 53 percent stake in Volkswagen to get a large stake in Porsche. It is possible that they would buy all the common shares issued, leaving Porsche with only 12.5% of its free float.
Ferdinand Dudenh Ffer, director of the Automotive Research Center in Duisburg, Germany, sees the proposed spin-off as yet another example of family interests prioritizing. Dudenhof said in an email: "Families are winners and are securing their investment. Volkswagen, on the other hand, is the loser because of its distorted governance system. ”
Porsche SE holds 53.3% of Volkswagen's common stock (Source: www.porsche-se.com)
Fish and bear paws?
For some traditional automakers, splitting up hot-selling assets could be a clever way to compete for capital with pure electric car companies like Tesla and Rivian. Still, news around Detroit's two giants is flowing in the opposite direction.
Last week, when Dan Ammann, chief executive of Cruise, the autonomous car division of GM Holdings, left, GM did not give a specific explanation, and the stock fell about 6 percent in response.
Asked if he plans to spin off its self-driving car subsidiary Cruise, GM CEO Mary Barra said, "Not now." He added that Cruise has just begun to build a business centered on a national shared service that uses driverless cars, and should focus on value creation first before making the decision to spin it off.
Previously, Bloomberg reported that Ford may split the fuel vehicle and electric vehicle business, and may even list the electric vehicle business as a subsidiary. To do this, the support of the family of founders in control is crucial. On Wednesday, Ford CEO Jim Farley replied: "Ford will not spin off the electric vehicle business or the internal combustion engine business. ”
These few examples illustrate the conundrum: Automakers want to take advantage of bullish automotive technology and investors, but they don't want to relinquish control of their vital assets.
Volkswagen's EBITDA (Amortized Profit Before Tax Ebitda) multiple is 7 times, compared to Tesla's 198. In other words, Tesla is trading at about 30 times the price of Volkswagen. (Source: Seeking Alpha)
Over the past few years, established automakers like Volkswagen, GM and Ford have been rated far less stock than Tesla and other EV startups.
These start-ups can seek from equity investors the huge amounts of money they need to design and build electric vehicles, while traditional car companies must rely on hard-earned cash flow and therefore need ways to smooth the financial competitive environment.
Porsche isn't the only asset Volkswagen can raise. Perhaps with an eye to the massive IPO of South Korean battery giant LG Energy, Volkswagen announced last week that it would invest in a dedicated battery manufacturing company. Similarly, analysts speculated earlier this year that GM might split up its battery platform, Ultium, as it did with Cruise.
The problem with this theory is that electric vehicles and related digital technologies are at the heart of automakers' strategies. The company may consider selling equity in supply chain assets — a plan for Volkswagen in the battery business — but only if the deal doesn't limit its strategic flexibility.
Herbert Diess, CEO of Volkswagen, believes that self-driving technology will be widely adopted within 25 years, and it is the most important strategic theme for the future of the automotive industry. GM's reluctance to take Cruise public is also a hint that Mary Barra is increasingly seeing driving automation as a core competency for companies like electric vehicles.
Automakers considering spin-offs are caught in a dilemma. They can retain control of the assets, but doing so is somewhat self-defeating, as the shares that can be released to make more profits are therefore limited.
Lower Saxony, which has two seats on Volkswagen's board, said in a statement that the board has not yet decided to list Porsche shares, declining to say whether it will support the IPO. A spokeswoman for Lower Saxony said in a statement: "The implementation of this transaction is subject to further review and final approval by the relevant authorities. ”
Sources close to Volkswagen's management noted that the IPO could still be canceled due to internal disputes or unfavorable market conditions. The point is that, according to the relevant banks, there is no officially designated lender to lead the transaction at this time.