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European Carmakers Act Pre-emptively to Keep Control

From nytimes| March 28 , 2007

Porsche’s decision this weekend to raise its stake in Volkswagen, along with DaimlerChrysler’s recent decision to find suitors for Chrysler, reflect European automakers’ desire to control their own fates, rather than see them decided by less friendly acquirers.

To Bolster Control, Porsche Will Make Bid for Volkswagen (March 25, 2007) At the same time, the two remaining American automotive giants, General Motors and the Ford Motor Company, would be wise to pay attention, analysts said Sunday, because the fates of their European rivals will have implications for their operations at home and abroad.

Executives at both Porsche and DaimlerChrysler have said their actions are motivated, in part, by the fear of hostile takeovers prompted by their mediocre market capitalization, especially in comparison with Toyota, the world’s most valuable carmaker, with a market capitalization of about $239 billion.

Acquisitions by outsiders could put Germany’s automobile industry in the same position as Britain’s, where every notable name has been sold to foreign owners.

That is a legitimate concern, said John A. Casesa, a veteran industry analyst and managing partner of Casesa Shapiro Strategic Advisors in New York.

“This industry is ripe for further consolidation because the most profitable markets have matured; they’re not growing anymore,” he said. “These are classic conditions for consolidation.”

On Saturday, Porsche said it would lift its stake in Volkswagen to 31 percent from 27.3 percent. Under German law, Porsche is required to make a bid for all of Volkswagen, once its stake rises above 30 percent.

Its offer of 100.92 euros ($134.40) a share is the minimum amount Porsche can legally offer other shareholders and is well below Volkswagen’s most recent closing price of 117.93 euros.

A Porsche spokesman said the company was not seeking to acquire a majority stake in Volkswagen any time soon, and he even doubted if many shareholders would tender their shares at that bargain rate.

But the action confirmed Porsche’s desire to tighten its bid on Volkswagen, whose chairman, Ferdinand K. Pi?ch, is a member of the Porsche family, which still controls the sports-car company.

Further, the move may reflect Porsche’s expectation that a European court will strike down a German law that protects Volkswagen from hostile takeover bids.

By staking its claim now, even before the court rules on what is known as the VW Law, Porsche can fend off outside bids for Volkswagen, whose stock price had lagged until rising the last few months on speculation that Porsche might act.

“Porsche’s motivation is to stay in control so Germany does not lose” Volkswagen, said Adam Jonas, who follows the European industry for Morgan Stanley in London.

The desire to stay in control of his car company was also the justification given by DaimlerChrysler’s chief executive, Dieter Zetsche, who said last month that all options were open for Chrysler.

Since then, DaimlerChrysler has begun talks with potential bidders for Chrysler, including private equity firms and the Canadian auto parts firm Magna International.

On Friday, DaimlerChrysler stock jumped to its highest price in the last eight years when an industry analyst said Magna had made a preliminary bid to acquire the Chrysler unit.

DaimlerChrysler has not said what it would do if Chrysler were sold, but several shareholders have advocated a return to the Daimler-Benz name, and a renewed emphasis on Mercedes, the luxury car brand.

Should the sale fail to take place, DaimlerChrysler shares will probably fall once more, leaving the company even more vulnerable, Mr. Jonas said.

“If Zetsche doesn’t get this right, if they don’t extricate themselves, the door will be open to interlopers,” Mr. Jonas said.

Porsche, for its part, may be trying to protect Volkswagen from further painful restructurings like those that it has undergone during the last five years, when it has shed 20,000 jobs — and which an outside owner might insist upon. Porsche relies on Volkswagen for the production of some of its sport-utility vehicles.

Porsche executives are saying, “Look, trust us,” Mr. Jonas said. “We’re not trying to flip this thing for value. This is a 100-year investment. Leave it with us, and we’ll watch out for it.”

But if they ultimately link up, Porsche and Volkswagen may need to do some paring nonetheless, said David E. Davis Jr., founder of Winding Road, a Web magazine on cars.

“To make themselves even stronger, they’re going to have to get rid of some of these boutique car companies they own, like Lamborghini and Bugatti,” he said.

The turmoil in Europe may easily put more pressure on G.M. and Ford, each deep into restructuring plans after collective losses of nearly $15 billion last year.

Should Chrysler be sold to a private equity firm — as many analysts believe will happen — and if Mercedes emerges stronger without its former sibling, and if Porsche can use its brand magic to help boost Volkswagen sales, then the two American companies will find their task even tougher, Mr. Jonas said.


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