Volkswagen’s Bad Governance Could Give Porsche IPO a Racing Start


It would take a real market crash to throw the Porsche initial public offering off course.

Amid dire warnings about the European economy and weak stock markets,

Volkswagen


VOW 3.86%

said late on Monday that it had decided to press ahead with the minority IPO of its sports-car brand. This isn’t as strange as it sounds: The German automotive giant has other reasons to sell than simply to get the highest possible price for what might be its most valuable brand.

The governance of the deal is conflicted. Just over half of Volkswagen’s voting shares are held by

Porsche


POAHY 0.57%

SE, a listed investment vehicle majority-owned by the Porsche and Piëch families. Alongside the IPO, Porsche SE is buying a blocking minority of the voting shares of Porsche AG, the sports-car maker. So the company that controls the seller in this IPO is also the biggest buyer.

Precisely how Porsche SE’s financial interests stack up is determined by the deal structure, which hasn’t changed since it was first announced in February. All VW shareholders will receive a special dividend amounting to 49% of the deal proceeds, giving Porsche SE some incentive to push for a higher IPO price. But its interest on the other side of the deal in getting a lower price is much stronger.

For example, if the IPO gives Porsche AG a market value of $60 billion, at the low end of expectations, then Porsche SE would pay about $6 billion for the shares it is buying net of the cash it is receiving from the special dividend paid to all Volkswagen shareholders. If the valuation rises to $85 billion, the investment vehicle would have to spend a bit over $8.5 billion after accounting for the dividend.

Porsche SE also has a nonfinancial interest in pushing ahead with the IPO, irrespective of market conditions. The convoluted structure whereby it ended up as an investment company controlling Volkswagen and Volkswagen got control of the sports-car brand is the result of an infamous 2008 episode when Porsche tried and failed to take over Volkswagen using derivatives. The Porsche and Piëch families would love to close this ignominious chapter by getting back a direct stake in the company that bears one of their names.

There is no effort to manage this conflict of interest, which is entrenched by key management positions.

Hans-Dieter Pötsch,

the chief executive officer of Porsche SE, is Volkswagen’s supervisory board chairman—the person responsible for overseeing the actions of new CEO

Oliver Blume.

Mr. Blume is simultaneously Porsche AG’s CEO, opening another can of worms.

Of course the IPO, which is currently planned for the end of this month or the beginning of next, isn’t guaranteed to go ahead if Europe’s stock markets take another big dive, spooking investors. Europe’s auto stocks have fallen 27% in local currency terms this year as energy prices have surged, raising expectations of a recession. Even Ferrari, the luxury brand Porsche would like to be compared with, is down 16%. But this deal is less dependent on a buoyant market than most new listings.

None of this is great news for Volkswagen investors, but it does mean the IPO won’t be priced for the best of times—as that of

Aston Martin

was in 2018, with disastrous consequences for investors. For all the wrong reasons, Porsche AG is a stock that could get off to a racing start.

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