July 23 (Bloomberg) -- Volkswagen AG agreed to combine with Porsche SE after the departure of the sports-car maker’s Chief Executive Officer Wendelin Wiedeking capped a 4-year-long feud for control of the two German manufacturers.
An integration of Volkswagen with the 911 sports-car maker will benefit both automakers in the global market, VW Chief Executive Officer Martin Winterkorn said in Stuttgart, Germany. A Qatar fund will acquire 17 percent of VW, becoming the third- largest investor in the Wolfsburg-based company.
Volkswagen and Porsche, which said on May 6 that they were in talks to merge, were at loggerheads about ways to cut Porsche’s 10 billion euros ($12.8 billion) of debt. Wiedeking agreed today to step down after 16 years as CEO. Porsche, controlled by the Piech and Porsche families, owns about 51 percent in VW, Europe’s No. 1 carmaker, while the German state of Lower Saxony is the second-largest shareholder with a 20 percent stake.
“They have been doing a lot of projects together, it’s a good move for both,” said Arndt Ellinghorst, an analyst at Credit Suisse Group AG in London. Also, “they are bringing together the two companies that started together.”
Wiedeking choked up after being greeted by resounding applause and horns from hundreds of workers that had gathered in the rain at Porsche’s main Stuttgart plant. He told workers that he had come to the conclusion over the weekend that it was time for him to leave and outlined plans to donate half of his 50 million-euro severance pay to a foundation for Porsche workers.
‘Damn Hard Speech’
“You make the speech damn hard,” he said. “Without you, I wouldn’t have been anything.”
Michael Macht, who will succeed Wiedeking as head of Porsche’s carmaking operations, vowed to continue the strategy established under Wiedeking while family owner Wolfgang Porsche was holding back tears as he ended his address and hugged Wiedeking several times.
Porsche’s headquarters will remain in Stuttgart, Lower Saxony Prime Minister Christian Wulff said after a meeting of VW’s supervisory board. Qatar will be a “reliable” shareholder, he said. The carmakers will work on details of the integration in the next three weeks, Winterkorn said.
Qatar will receive the 17 percent VW stake as part of a transaction with Porsche to take over options that can be converted into VW shares, a person familiar with the situation said earlier. The Persian Gulf state will at the same time provide a 750 million-euro loan to Porsche, said the person, who asked not to be named because the discussions are private.
Porsche’s Transformation
Wiedeking had opposed selling Porsche’s automotive unit to VW. Almost bankrupt when he took over as CEO in August 1993, Wiedeking transformed Porsche into the automaker with the highest profit margins for the industry. In 2005, he began using cash from the luxury-vehicle business to acquire shares of VW, a company that builds more cars in a week than Porsche does in a year.
The David-bests-Goliath tactics worked until Wiedeking’s efforts to topple power structures at VW failed and the economic crisis thinned profits and spooked banks. When debt spiraled out of control, he was forced turn to the company’s family owners, the Piechs and Porsches, for capital and to court Qatar for an investment. A spokesman at the Qatar Investment Authority declined to comment when reached by Bloomberg today.
Wiedeking’s departure was announced after a meeting of Porsche’s supervisory board. At the same gathering, directors supported Porsche’s plan for a capital increase of at least 5 billion euros.
Wiedeking’s Successor
Macht, head of production, was named to run Porsche’s operating unit. The 48-year-old Macht joined Porsche in 1990 and became an executive board member in 1998. Macht graduated from the Stuttgart Technical College in 1986 with a degree in mechanical engineering. Thomas Edig, board member in charge of human resources, will become Macht’s deputy.
When Wiedeking took the helm in 1993, Porsche posted a net loss of 122 million euros on sales of 978 million euros. Last year, profit was 6.29 billion euros, boosted by gains from the VW options, while sales reached 7.47 billion euros, compared with 113.8 billion at Volkswagen.
Porsche, which has made more money on every car it sells than any other automaker since at least 2002, generated an operating margin of 13 percent last year, compared with 1.5 percent at BMW AG and VW’s 5.9 percent, data compiled by Bloomberg show.
Japanese Tactics
Wiedeking streamlined production with the help of experts from Toyota Motor Corp. to have components delivered on time and in the order of assembly. He focused Porsche on the iconic 911 sports car and then added the Boxster roadster in 1996 and Cayenne sport-utility vehicle in 2002 to broaden the brand’s appeal. The costs were kept low by outsourcing Boxster production to Valmet Corp. in Finland and partnering with Volkswagen on development and parts for the Cayenne.
Wiedeking was “the best manager”, said Kevin, a 17-year-old trainee at Porsche’s main plant in Stuttgart. “He lived for Porsche” and his departure marks “a black day.”
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