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Home / Opinion / Views /  Porsche’s skewed IPO shows pulling power of luxury brands

German carmaker Volkswagen is banking on the pulling power of its luxury brand to push through the IPO of its luxury car-making arm Dr. Ing. h.c. F. Porsche AG, known simply as Porsche to millions of fans. The hope is that the overpowering prospect of owning a piece of motoring luxury will trump the pronounced tilt towards the promoter families in the IPO structure.

Not that VW is making a secret of this. In early meetings with portfolio managers, Bloomberg reported, the German carmaker pitched the Porsche IPO as a chance to invest in a company that combined the car-making prowess–and profitability–of Ferrari with the luxe value of brands like Louis Vuitton and Cartier.

As part of the listing, 911 million Porsche AG shares–a clear nod to its bestselling 911 sports car model–will be divided into 455.5 million preferred shares and 455.5 million ordinary shares. Only the preferred shares, which do not carry any voting rights, will be listed.

The ordinary shares, which do carry voting rights, will be sold to the Porsche-Piech families, whose family-owned holding company Porsche Automobil is the biggest shareholder in VW. In effect, the IPO will give ordinary investors 12.5 per cent of the equity in Porsche, without any say in the management.

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The Porsche-Piech families, on the other hand, who lost control over the company in 2008 after a botched takeover bid on VW, which backfired and ended up in VW buying Porsche for around Euro 8 billion–have a lot to gain. For starters, they will get a blocking 25 per cent plus one shareholding, which will give them considerable control over management decisions and the power to block board resolutions.

And to make the deal sweeter, they wouldn’t even have to find the money to pay for their allocation. VW is planning to give out a bonus of Euro 911 million (another hat-tip to the Porsche 911), which should greatly reduce the amount the families will have to raise in order to buy their allocation.

The floatation could raise as much as Euro 10.6bn ($10.5bn), which would make it the biggest stock market listing in Europe since 2011 and likely the third biggest ever in Europe.

That would certainly be good news for VW, which is hoping to raise between Euro 18.1 billion and 19.5 billion from the stock sale. This would also value Porsche at almost the same as VW, which will help VW raise additional capital to pursue its electric ambitions.

Though Volkswagen has both luxury brands like Porsche, Lamborghini and Bentley under its umbrella, as well as mass brands like Volkswagen and Skoda, and two-wheeler brand Ducati (VW, Skoda and Ducati are all in the Indian market), its ability to raise capital is somewhat limited by the lacklustre performance of its share. The VW share traded at a PE multiple of 5.4 (as of September 19). Compare this with Tesla’s astounding PE of 109.64 (as of September 19), or even home-grown Maruti Suzuki’s PE of 63.27!

Though VW was the largest automotive company in the world in 2021 in revenue terms and second in production numbers, by market cap, it is fourth behind Tesla, Toyota and BYD. But the three higher valued rivals are all far ahead in the electric race. Tesla and BYD are pure electric vehicle manufacturers while Toyota is the leader in hybrids.

VW, in comparison, had only 6 per cent of its sales from electric cars. Porsche, on the other hand, is well ahead on the electric front, with electric vehicles set to account for 50 per cent of sales by 2025 and 80 per cent by 2030, making it the closest legacy challenger to Tesla. Faster electrification will drive Porsche’s value even higher (Tesla is valued at over $968 billion), helping VW raise funds to convert its legacy auto businesses to electric vehicles that much faster.

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