Volkswagen shares dip as it values Porsche at up to $75 billion

© Reuters. FILE PHOTO: A logo of Porsche is seen outside a Porsche car dealer, amid the coronavirus disease (COVID-19) outbreak in Brussels, Belgium May 28, 2020. REUTERS/Yves Herman/File Photo

By Victoria Waldersee

BERLIN (Reuters) – Volkswagen (ETR:) shares dipped on Monday as investors gave a muted reaction to news the automaker is targeting a valuation of up to 75 billion euros ($75 billion) for sports car brand Porsche, in what could be Europe’s third biggest IPO ever.

Porsche aims to win over investors with its track record of success and high margins, even as shares of other luxury carmakers like Ferrari (NYSE:) and Aston Martin have suffered this year 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 euros at 1155 GMT from Friday’s close of 145.46, after rising 3% in premarket trade.

Uncertainties around 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 AG becomes more independent – but this is not an independent set-up.”

The valuation announced on Sunday for Porsche AG of 70 billion-75 billion euros is slightly below some investors’ estimates of up to 85 billion euros, but still far outstrips the valuation of other German carmakers like BMW’s 49 billion euros or Mercedes-Benz’ 61 billion.

It also comes close to Volkswagen’s own market capitalisation of 88 billion euros.

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

While the IPO could still be pulled before trading starts on Sept. 29, Porsche AG’s Chief Financial Officer 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 AG at 76.50-82.50 euros per share.

A prospectus with further details of the listing is expected to be published on Monday afternoon.

Volkswagen plans to sell up to 12.5% of Porsche AG’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 750 million euros, Sunday’s statement said.

Abu Dhabi’s ADQ will buy shares worth 300 million euros.

“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,” auto expert Arndt Ellinghorst of data analytics firm QuantCo said.

Analysts have compared Porsche AG stock to Ferrari, which has a market capitalisation of 38 billion euros 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 AG, with Chief Executive Oliver Blume running both the sports car maker and the Volkswagen Group and Porsche SE retaining a significant stake in both.

The subscription period for private and institutional investors is expected to run from Sept. 20 to Sept. 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 SE, 25% plus one ordinary share in the sports car brand, which do carry voting rights, will go to Porsche SE at the price of the preferred shares plus a 7.5% premium.

Total proceeds from the sale will be 18.1 billion to 19.5 billion euros.

($1 = 1.0022 euros)