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VW takes bigger slice of Porsche

Bargain hunting: Volkswagen is set to buy almost half of Porsche AG - as long as shareholders agree to a fund-raising share sale.

Volkswagen increases its ownership of Porsche to 49.9 per cent as prelude to merger

21 Oct 2009

ANOTHER shoe has dropped in fire sale of struggling European car companies, with Volkswagen AG announcing it will take a bigger-than-expected 49.9 per cent stake in Porsche AG as a first step towards a total merger of the companies in 2011.

VW originally said in August it would take 42 per cent ownership of the luxury sportscar-maker after Porsche stumbled in its own bid to take over VW, tripped up by the global financial crisis and debt that blew out to €10 billion ($A16.1b).

However, VW claims negotiations for closer co-operation between the two organisations are going so well that it has decided dig deeper – to the tune of €3.9 billion ($A6.31b) – for a greater share of ownership.

“Volkswagen is thus securing a higher share of the increase in the value of Porsche expected from the joint projects at an early stage,” VW said in a statement from its Wolfsburg headquarters in Germany.

“At the same time, Volkswagen remains committed to the phased integration of the two companies and is preserving the independence and the interests of Porsche.”

 center imageLeft: Opel's strike-hit Zaragoza factory in Spain.

VW’s board is planning to take a proposal to shareholders for a preferred share capital-raising via 135 million new preferred shares next year to finance the deal “and maintain Volkswagen’s good credit rating”. A vote will be held at an extraordinary general meeting on December 3.

Meanwhile, General Motors’ plan to sell its European Opel/Vauxhall business to parts-maker Magna International has hit another snag, with European Commission competition authorities querying the fairness of German government state aid to just one of the bidders – Canadian-based Magna and its Russian banking partner SberbankThe EC has sent a letter outlining its concerns that the favouritism inherent in the €4.5 billion ($A7.2b) aid package to a single bidder might breach international competition rules.

Automotive News reports that the GM board is planning to discuss the concerns and its next step in its plan to sell 55 per cent of Opel to Magna.

Opel reportedly will run out of cash by mid January unless a deal can be sealed, making a speedy conclusion to negotiations imperative.

GM’s alternatives are limited, as rival bidder RHJ International has lost interest, and one-time suitor Fiat SpA has its hands full with Chrysler.

One option is for GM to scrap its Opel sale plan and, on the strength of improving world markets and easier finance conditions, hang on to a cut-down version of its European operation – a scenario floated by GM CEO Fritz Henderson in an interview with Britain’s Financial Times.

Some observers believe will GM will call the EC’s bluff and proceed regardless.

In Spain, workers at Opel's plant in Zaragoza are holding four one-day strikes in protest at job and production cuts included in Magna's proposed takeover.

The workers claim work at the factory is being transferred to Germany at the cost of Spanish jobs in a restructuring seemingly underwritten by the German government – the type of deal that has raised the ire of the EC.

In Sweden, GM is also facing delays in its sale of Saab while the EC mulls the veracity of Swedish government loan guarantees to clinch the deal with main bidder Koenigsegg Group AB.

A decision by the EU could take months, placing the necessary European Investment Bank loans of €400 million ($A647m) in limbo.

Saab rival Volvo’s own future also is still up in the air as owner Ford Motor Co negotiates with bidders, including front-runner China’s Geely Automotive and American consortium Crown.

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