Bankers Love Porsches. Finally, VW Sees the Logic of an IPO
(Bloomberg Opinion) -- If you wanted to design a car company to fetch a princely valuation on the capital markets, it would probably look much like Porsche AG.
Like Ferrari NV, Porsche has excellent profit margins and a reputation of sporting and luxury heritage. Plus, it has an impressive electric-vehicle strategy to challenge Tesla Inc. — the Porsche Taycan already outsells the 911. As a standalone company, Porsche could be worth 80 billion euros ($91 billion).
This is why I and almost everyone who follows parent company Volkswagen AG have long argued that the best thing it could do is list Porsche separately. After all, VW’s entire market capitalization barely exceeds 100 billion euros.
And by jove, it finally looks like it’s going to happen! On Tuesday, VW confirmed advanced discussions with the Porsche and the Piech family holding company regarding a potential initial public offering of the Porsche car business.
With the threat of war in Ukraine and interest rate hikes roiling financial markets, this is hardly an ideal time to list any kind of business. Important details still require straightening out, and there’s no guarantee the transaction will reach the finish line. Yet the fact that we’ve gotten this far is a minor miracle.
Institutional investors have very little influence at VW. The Porsche/Piech families, the state of Lower Saxony and trade unions all calls the shots, and unfortunately they rarely agree. But having collected an impressive stable of brands over the years, their default position is not to sell them.
Yet even the dinosaurs in VW’s boardroom appear to have realized the status quo isn’t tenable. In the coming decade, VW must completely overhaul its factories and stop relying on combustion engines. With its lowly valuation, it has one hand tied behind its back. Tesla comes with none of the same baggage and is thus is valued at almost $900 billion. Selling stock gave Tesla funds to build a German factory in VW’s backyard.
Slow-moving corporate Germany realizes it must change. Daimler AG renamed itself as the much-sexier Mercedes-Benz Group AG and spun off its trucks business last year, for example. Beyond the car sector, Siemens AG has shown the way by separately listing several units. Auto-parts supplier Continental AG could be next for the break-up treatment.
Listing Porsche is the most consequential step VW can take to unlock its conglomerate discount. The current set-up doesn’t allow for separating VW’s combustion and electric activities because they’re so intertwined at a brand level.
It’s not clear why Porsche and VW’s power brokers favor an IPO rather than a much simpler spin-off. If, as has been reported in the German press, the Porsche and Piech families intend to sell some of their VW shares to purchase a larger stake in Porsche AG (their pride and joy), this could create some interesting conflicts of interest.
In a separate statement, the family holding (confusingly called Porsche Automobil Holding SE), said it could acquire ordinary (voting) shares in the Porsche IPO.
It’s in VW’s interest to get the highest value possible for Porsche, whereas the families in theory, have an interest in acquiring shares on the cheap. They own a majority voting stake in VW and have several board seats. It helps the families that VW’s ordinary (voting) shares currently fetch a big premium to the non-voting, more liquid preference shares.
Given its conservative track record, VW may decide to sell a comparatively small stake in Porsche, which may hold back the valuation potential. Something similar happened when VW sold only a 10% stake in its Traton SE trucks unit in 2019.
Even so, a Porsche IPO would be a massive step forward. Bankers love their Porsches; now they’ll be able to buy the stock too.
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Porsche generates more than 4 billion euros of annual operating profit. Back of the envelope, I've applied a 20 times EBIT multiple, which is a big discount to where Ferrari trades
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Chris Bryant is a Bloomberg Opinion columnist covering industrial companies. He previously worked for the Financial Times.
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