VW green light for Porsche tie-up

Volkswagen set itself on course to surpass Toyota as the world’s largest carmaker on Friday when its supervisory board gave the go-ahead for the takeover of Porsche and agreed on a €25.8bn ($38.3bn) three-year investment programme.

The German carmaker said its board members approved a set of contracts that lay out details of a complex plan to merge with the family-owned company by 2011.

Porsche’s supervisory board also approved the contracts.

As a first step, VW will buy a 49.9 per cent stake in Porsche’s sports car business for €3.9bn by the end of this year.

The agreement marked the beginning of the end of the sports carmaker’s independence and the start of a new era for its family owners, who are poised to become the largest shareholders of a merged VW/Porsche group.

It will also bring VW another step closer to overtaking Toyota as the world’s leading carmaker by sales and profit margins by 2018.

Porsche will only add another 100,000 vehicles to VW’s more than 6m annual car sales.

However, Porsche can boast of a double-digit operating profit margin amid the current economic crisis – although it reported a €4.4bn pre-tax loss in the past fiscal year as a result of failed bets with VW share options.

VW’s supervisory board also approved a three-year plan for investments into property, plants, equipment and development.

VW said it had earmarked 6 per cent of its future revenues for capital expenditures. It aims to spend €13.3bn of that on an array of new vehicles and successor models to move into further markets and segments.

Analysts say the carmaker has fared better during the crisis than most rivals. VW is on track for a profit this year and, thanks to various scrapping incentives worldwide, it reported a small sales increase in the first 10 months of 2009.

Arndt Ellinghorst, analyst at Credit Suisse, said: “VW is emerging from this crisis as the best positioned carmaker globally.

“But corporate governance rightly is a major investor concern.”

VW surprised analysts and investors with a planned €4bn preference capital increase and with a perceived lack of transparency on the valuation of Porsche.

It will be seeking approval for the rights issue from shareholders on December 3. People close to the situation said the capital increase could be done in March or April next year.

VW said this move would “significantly enhance the liquidity of this class of share to the benefit of shareholders”.

VW’s supervisory board also promoted Rupert Stadler, chief executive of the carmaker’s premium brand Audi, to a member of its management board.