Volkswagen: Why Porsche’s IPO May Not Be So Sparkling

(BFM Bourse) – Volkswagen confirmed this week the IPO of its luxury brand, which should be effective before the end of the year. But this important operation comes at a delicate time in terms of market conditions.

Porsche is about to hit the road on the stock market. Its parent company Volkswagen a, following a supervisory board meeting held overnight from Monday to Tuesday, confirmed and clarified the builder’s separate quotation project of the famous 911.

The intention to float, the first stage of the initial public offering (IPO), should be completed in early September or early October and the operation should be finalized before the end of the year.

Porsche would thus be listed in Frankfurt and join the other listed luxury car groups Ferrari and Aston Martin, which entered the Milan and London Stock Exchanges in 2016 and 2018 respectively.

The biggest IPO in Europe since 1999

The operation must both make it possible to crystallize the value of the mythical brand, the market having the habit of granting more generous multiples to separate activities. For Volkswagen, a listing of Porsche will raise funds to finance its transition to electric…and remunerate its shareholders. The group thus plans to distribute 49% of the gross proceeds of the issue as an exceptional dividend to its holders, subject to the green light of an extraordinary general meeting.

According to sources cited by Bloomberg, Volkswagen tested the market’s appetite, with renowned investors among the main interested parties, such as the sovereign wealth fund of Qatar or the founder of Red BullDieter Mateschitz, and the CEO of LVMH, Bernard Arnault. According Blooomberg, Porsche could be valued between 60 billion and 85 billion euros. If we take the upper part of this range, Porsche’s entry into Frankfurt would constitute the largest IPO in Europe since 2019, according to Refinitiv.

In comparison, the market capitalization of Volkswagen currently amounts to 86 billion euros. Tesla, for its part, weighs almost 10 times more, with a capitalization of 905 billion euros, and is trading more than 100 times the expected earnings this year, against 4.3 times for Volkswagen and 40 times for Ferrari.

Difficult market conditions

The IPO of Porsche occurs especially at a very inauspicious time. The automobile compartment in Europe has been suffering for several weeks. Over one month, the European Stoxx Europe 600 and Parts sector index has lost around 7%, and has even fallen by 21% since the beginning of January. This decline has not spared Ferrari and Aston Martin, which have lost 13.3% and 66% respectively since the start of the year, or even Tesla, down nearly 28% over the same period.

“The timing is clearly not ideal for an IPO, 2022 is, unlike 2021, not the year of stock market euphoria or IPOs, and the valuation figures circulating on Porsche seem very optimistic to me. , despite the quality of the company”, explains an analyst specializing in the automotive sector. “They would certainly have a better chance of hitting that $60 billion to $85 billion range next year in a likely less risky environment.”

There are many reasons penalizing automotive stocks on the stock market, cyclical stocks by nature. “You’ve got interest rates rising [qui pèse sur la demande, NDLR]the economic slowdown in China, fears of a recession in the United States next year, in addition to the difficulties specific to the sector, such as the supply of semiconductors and the increase in raw materials”, develops the ‘analyst.

A regional election

Added to these difficulties are the uncertainties about the gas supply in Germany, after the closure of Nord Stream 1, which raise fears of restrictions or even rationing to which the automotive sector would most likely be exposed. On Monday, the announcement of the closure of the gas pipeline by Gazprom rolled all European car stocks.

“The timing is not ideal”, abounds the Stifel bank. The research office also points out that the planned date for the launch of the IPO is a few days before the regional elections in Lower Saxony on 9 October. “What could trigger changes in the supervisory board of Volkswagen and therefore potentially bring uncertainty to the support for the IPO”, explains the establishment.

Lower Saxony, a German region, is the group’s second largest shareholder with 20% of the voting rights and 11.8% of the capital. However, Stifel thinks that the operation should be completed, despite this deleterious context.

Quoted by Reuters, the chairman of the management board of Porsche, Oliver Blume, judged on Tuesday that the IPO of his company could give a boost to a market that lacks interesting opportunities. “There is a lot of capital in the market. We think the Porsche IPO could break the ice,” he said.

The leader then drove the point home on Thursday during an interview with Reuters. “Despite the market conditions, the interest is huge. It’s a great success,” he said.

Questions about governance

Moreover, the structure of the operation, particularly in terms of governance, can raise eyebrows, underlines Stifel. The Piëch family, descendant of Ferdinand Porsche, founder of Volkswagen, will take a significant stake in Porsche via its Porsche SE holding company (not to be confused with Porsche AG, the car manufacturer) up to 25% +1 unit of ordinary shares, i.e. a blocking minority. Remember that the capital of Porsche will be divided half into preferred shares (with a reinforced dividend but without voting rights) and into ordinary shares for the other half.

However, Porsche SE owns 31.4% of the capital of Volkswagen and 53.3% of the voting rights. In other words, the Piëch family controls a group that will sell it a large stake in its subsidiary. And Hans Dieter Pötsch simultaneously holds the position of Chairman of the Supervisory Board of Volkswagen and Chairman of the Executive Board of Porsche SE…

“There could be a risk that Volkswagen sells Porsche AG too cheaply, which would be negative for [l’action] Volkswagen and positive for Porsche SE [également cotée à Francfort, NDLR]”, underlines Stifel. Bloomberg’s leaks on the valuation have however reassured the bank which judges that Volkswagen could benefit the most from the transaction, in the end.

After a long stock market battle that began in 2008, Volkswagen had ended up buying Porsche AG 100%, after the latter itself tried to swallow its German competitor. Almost 15 years later, Porsche SE will therefore become the largest shareholder of the automotive group whose name it shares…

[Note: les cours et éléments de valorisation ont été arrêtés vendredi en début d’après-midi]

Julien Marion – ©2022 BFM Bourse

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