Porsche listing soured by governance concerns

Berlin — Volkswagen shares dipped on Monday as investors gave a muted reaction to news that the carmaker is targeting a valuation of up to €75bn for sports car brand Porsche, in what could be Europe’s third-biggest initial public offering (IPO) ever.

Porsche aims to win over investors with its track record of success and high margins, even as shares of other luxury carmakers such as Ferrari and Aston Martin suffered in 2022 in the tumult on European stock markets.

Volkswagen, which some analysts have said could unlock value for its own stock by listing the luxury brand, saw its shares fall slightly to €144.62 at 11.55am GMT from Friday’s close of €145.46, after rising 3% in premarket trade.

Uncertainties around the governance of the two companies and the strong grip of Volkswagen’s top investors on strategy at both could explain the lack of enthusiasm from markets, Ingo Speich, head of sustainability and corporate governance at top-20 Volkswagen investor Deka Investment, said.

“If the splitting off of two companies improves the management quality and strategic direction of a business, that will be reflected in the valuation,” Speich said. “It is fundamentally right that Porsche becomes more independent — but this is not an independent set-up.”

The valuation announced on Sunday for Porsche of €70bn-€75bn is slightly below some investors’ estimates of up to €85bn, but still far outstrips the valuation of other German carmakers such as BMW’s €49bn or Mercedes-Benz’s €61bn. It also comes close to Volkswagen’s own market capitalisation of €88bn.

Shares in Porsche SE, Volkswagen’s largest shareholder which will take a big stake in Porsche, were 2.42% higher, topping Germany’s DAX blue-chip index.

While the IPO could still be pulled before trading starts on September 29, Porsche’s CFO Lutz Meschke said in early September this would only happen in the event of new “severe geopolitical problems”.

Volkswagen said on Sunday it would price preferred shares in the flotation of Porsche at €76.50-€82.50 per share.

Volkswagen plans to sell up to 12.5% of Porsche’s share capital to investors in the form of preferred shares, which do not carry voting rights.

Already, cornerstone investors have laid claim to almost 40% of the offer: Qatar Investment Authority, Volkswagen’s third-largest shareholder, has committed to buying 4.99%, while Norway’s sovereign wealth fund and T Rowe Price will each purchase shares worth €750m, Sunday’s statement said.

Abu Dhabi’s ADQ will buy shares worth €300m.

“The Porsche IPO will most likely be a success ... investors are queuing up. If the Porsche IPO goes well, one could imagine placing other parts [of Volkswagen] such as Audi on the stock exchange,” car expert Arndt Ellinghorst of data analytics firm QuantCo said.

Analysts have compared Porsche stock to Ferrari, which has a market capitalisation of €38bn but an operating margin of 24% to Porsche’s 17%-18%. The German carmaker is targeting a 20% margin and is far ahead in electric vehicles.

But some investors have expressed caution over governance issues at Porsche, with CEO Oliver Blume running both the sports car maker and the Volkswagen Group and Porsche retaining a significant stake in both.

The subscription period for private and institutional investors is expected to run from September 20 to September 28, with shares offered to private investors in Germany, Austria, Switzerland, France, Italy and Spain.

In line with Volkswagen’s agreement earlier in September with Porsche, 25% plus one ordinary share in the sports car brand, which do carry voting rights, will go to Porsche at the price of the preferred shares plus a 7.5% premium.

Total proceeds from the sale will be €18.1bn-€19.5bn.

Reuters