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VW prefs don’t deserve DAX treatment
Volkswagen’s merger with Porsche has exposed a bizzare quirk in the Deutsche Boerse’s index requirements, which could allow the carmaker’s preference shares to replace its ordinaries in the flagship DAX equity index.
Preference shares have no place in blue-chip equity indices. Their dividends must be paid before any distribution to ordinary shareholders, but they have no right to anything further, often lack voting rights, and escape most of the disclosure requirements imposed on ordinary shareholders.
 The latest twist in the VW/Porsche road trip is Qatar’s sale of half of some 50 million VW preference shares it has accumulated. It is concentrating its investment on VW’s ordinary shares, where it is aiming to achieve a holding of 17 percent.
This will mean more than 90 percent of VW’s voting shares will be held by the Porsche clan, the state of Lower Saxony and the Qataris. With a free float of less than 10 percent, the ordinary shares will no longer qualify for DAX inclusion.
Qatar will need to keep driving Porsche hard
It has taken a long time, but the Porsche clan is finally — and no doubt reluctantly — giving outsiders a say in how it runs the family firm.
The Porsche and Piech families — the descendents of Ferdinand Porsche –are selling a 10 percent voting stake in the Porsche holding company to Qatar in order to get them out of the financial mess they found themselves in when Porsche tried an audacious takeover of Volkswagen.
Porsche prepares to enter Auto Union with VW
It’s been a tortuous road, but Porsche looks as though it might finally have struck a deal with VW and Qatar to sort out its debt problems.
A Reuters report says that details of a deal between Volkswagen and Porsche have been broadly agreed, with VW set to buy a stake of up to 49 percent in the sportscar maker. The Porsche marque will then enter into a new “Auto Union” as the 10th brand, under the leadership of VW CEO Martin Winterkorn.
Investors ignore ratings at their peril
   Rexam is delivering a nasty surprise to its shareholders, but the logic of its proposed rights issue is hard to fault.
   If trading turns out to be as bad as the board expects, then the penalty payments for refinancing its existing debt will far outweigh the cost and dilution of the issue.
   Broker Oriel Securities reckons the cost to Rexam if it loses its investment grade rating will be an extra 8 to 12 million pounds a year in interest payments.
   Businesses everywhere are rediscovering the joys of equity, as the way to stave off the dreaded downgrade. So far this year, shareholders have put up $119 billion, according to Thomson Reuters data, with $28 billion more due.
   Even cash-rich carmaker Volkswagen is reported to be considering issuing shares to bolster cash reserves and pre-empt any ratings downgrade relating to its merger with Porsche. Spanish utility Iberdrola and French construction groups Lafarge and Saint Gobain all took similar steps to bolster their ratings.
   Unfortunately, credit ratings agencies are so jumpy about regulators and the risks of legal action by investors that companies can’t always bank on such moves working.
   Saint Gobain launched a rights issue, but still S&P cut it to BBB from BBB+. Lafarge did worse. Fitch not only cut its rating to BBB-, it added a “negative outlook”.
   One reason ratings have increased in importance is that as banks have turned off the taps, companies have turned to the bond markets, allowing the agencies like Moody’s Corp and McGraw-Hill’s S&P to cash in.
   Experience has taught them caution, however, and the number of issues downgraded from investment grade to junk is on the rise. The threat of this — with the higher cost of borrowing and reduced market access it brings — is a powerful incentive to go to the shareholders. S&P has identified 75 issuers — with $255 billion of debt — in danger of losing their coveted investment grade.
   The unhappy experience of Rexam shareholders is likely to repeated many times as the debt crisis unwinds, but at least it’s better than losing control of the business to its lenders.
Wiedeking Porsche exit paves way for VW
Porsche’s chief executive Wendelin Wiedeking may have been persuaded to leave in order to ease a merger with Volkswagen, but there are still major hurdles to overcome before the sports car maker finally emerges from the pits.
Wiedeking is paying the price for his disastrous plan to take over the far larger carmaker, which left Porsche with a majority stake in VW but saddled with debts of 10 billion euros ($14 billion). His departure marks a crucial turning point in a bitter power struggle between VW Chairman Ferdinand Piech and his cousin Wolfgang Porsche, chairman of the family firm.
Conti should turn tables on Schaeffler
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Porsche isn’t the only family-controlled German company that has got itself into a complete pickle bidding for a far larger rival.
   Indeed, if you want a test case of how ambition can land a company in serious financial difficulties, look no further than Schaeffler, a privately-owned ball bearings maker which has
seriously overextended itself following a bid for listed car parts maker Continental last year.
Wiedeking makes millions betting the ranch
It isn’t only the investment bankers who have pay packages that offer perverse incentives.
Take Wendelin Wiedeking, for instance. The chief executive of Porsche <PSHG_p.DE> enjoys a package that most bankers could only dream of. And boy does it offer a perverse incentive. Indeed, arguably, it’s one of the reasons that Porsche has got itself in such a big financial hole that it may have to be rescued by Volkswagen <VOWG.DE>, a rival carmaker in which it has built a majority stake.
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Wiedeking is one of Germany’s best paid bosses. He is entitled to receive a performance-related bonus equivalent to 0.9 percent of Porsche’s pre-tax profits. He apparently secured this right when he took over as chief executive in 1993. At the time the company was losing money and almost bankrupt.
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The incentive has certainly worked. Wiedeking has turned Porsche into the most profitable car company in the world. The snag is that a large chunk of these juicy profits have come from financial sources rather than boring old car-making — initially from unspecified hedging activities and more recently from trading in VW shares.
Piech firmly behind the wheel at VW and Porsche
However the Volkswagen-Porsche stand-off resolves itself, it looks as if Ferdinand Piech holds all the cards. That should worry VW <VOWG.DE> investors.
Just look at how things stand. VW’s chairman has an iron grip on the carmaker’s board, having struck an alliance with the unions who control half the seats on it. Meanwhile, he and some of his relatives also have a blocking stake at Porsche <PSHG_p.DE>.
Porsche’s VW options not for the faint-hearted
Porsche may own a lot of options on Volkswagen - around 20 percent of the larger carmaker’s shares – but the sports car maker is running out of alternatives to solve the financing problems it built up by acquiring a 51 percent stake in VW.
Despite a recent report of other investors being interested in relieving it of the options, Porsche insists that talks with Qatar remain exclusive.
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The Wall
