Volkswagen initiates huge Porsche IPO plan, amid market worries

Volkswagen announced on Monday its ambition to float sports car brand Porsche, which may become one of the world's largest initial public offerings (IPOs) amid record inflation and a Russia-Europe energy spat that have caused European shares to fall.

The automaker announced its "intention to float" in late September or early October for an IPO to be completed by the end of the year, but cautioned that the listing and timing were "subject to future capital market developments."

Earlier on Monday, sources close to the negotiations told Reuters that Volkswagen (ETR:VOWG p) may extend the deadline for buyers to express interest by four weeks or cancel its plans entirely if investors do not demonstrate sufficient enthusiasm to make the transfer lucrative.

Before the verdict, one of the sources claimed, "it would be a technical approval, nothing more." This is preparatory work, but there is no assurance that the stock market bell will eventually ring.

Investors estimate a valuation in the range of sixty to eighty-five billion euros. While Porsche is a strong brand, Aston Martin and Ferrari (NYSE:RACE) have depreciated.

If predictions are right, the IPO may be among the largest in German history and the largest in Europe since 1999, according to Refinitiv statistics.

Qatar will pledge 4.99% of the newly listed company as a cornerstone investor.

In addition, preferred shares will be sold to individual investors in Europe, including France, Spain, and Italy, in an attempt to attract Porsche's passionate enthusiasts.

Volkswagen also approved the sale of 25% plus one share of ordinary shares in Porsche AG to Porsche SE, providing the controlling Porsche and Piech families with a blocking minority and strengthening their demand for a tighter hold on the automaker.

TIMING Volkswagen indicated that a public offering of stock would be an important milestone in the company's future as it attempts to increase its software and electric vehicle capabilities.

The Volkswagen Group benefits from Porsche's status as a premium brand with the ability to raise prices. In the first half of this year, the company's operating profit climbed by 22%, but its mass-market Volkswagen brand declined by 8%.

With European stocks in a downward spiral, inflation at record highs, and Russia ceasing gas production, some investors believe it is a dangerous moment to invest in the stock market.

Hendrik Schmidt, a governance expert at Volkswagen investor DWS, indicated that the Porsche and Piech families' primary rationale for pressing on the listing despite market instability is their desire for greater control.

"Current market conditions are pretty unfriendly," said Ingo Speich, head of sustainability and corporate governance at Deka Investment, a top-20 Volkswagen investor who declined to comment on whether Deka would acquire Porsche shares.

If the initial public offering is successful, Volkswagen will hold an extraordinary general meeting in December to propose a special dividend of 49% of the proceeds to be paid in early 2023.

Analysts at Stifel observed, "VW should work on its timing: the IPO plan was published on the same day that Russia invaded Ukraine, and the 'Intention to Float' comes out just as Russia ends natural gas exports to Germany."

The German automobile association forecasts a 4% drop in passenger car deliveries in Europe this year, with the post-pandemic rebound still to materialize.