Volkswagen hits back, weighs making a bid for Porsche

Volkswagen is considering an audacious reverse-takeover bid for its majority shareholder, Porsche, in a twist in the drawn-out struggle for control between the two German carmakers.

The Volkswagen Group's supervisory board is said to be weighing the possibility of purchasing Porsche AG, in a move that would relieve its holding company, Porsche SE, of massive debt that industry analysts suggest the company may not be able to fund should the world's financial crisis drag on well into 2010--a scenario put forward this week by the International Monetary Fund.

The secret plan emerged as shareholders were set to convene at Volkswagen's annual meeting on Thursday, and it comes after Porsche revealed that it is carrying some 9 billion euros ($11.73 billion) in debt, most of it owing to interest on loans taken out to purchase its 50.8 percent stake in VW.

Porsche on Thursday said that the 280 million euros ($365 million) it would receive in dividends from Volkswagen and its own operating profits would be sufficient to service interest payments for 2009. However, questions still hang over Porsche's ability to meet ongoing budgetary concerns, most notably its traditionally large spending on research and development.

Porsche has raked in massive profits in recent years on controversial option trades for Volkswagen. It recently reported a windfall of 6.8 billion euros ($8.86 billion)--or more than double its own revenue--from its takeover of Volkswagen. However, the gains are mainly related to an increase in the Volkswagen share price, which the banking sector describes as paper gains that are not easily converted to cash.

The revealing of the Volkswagen plan to consider a bid for Porsche has cast a shadow over the long-term future of Wendelin Weideking. The straight-taking Porsche chairman originally was hailed in financial circles for his daring takeover of Volkswagen, a company more than 10 times Porsche's size. But with the world's financial crisis hitting Porsche's earning potential and its ability to service loans, there have been suggestions that he could be ousted by the Porsche and Piech families, which together hold a majority stake in Porsche.

For some time now, German automotive-industry analysts have suggested that General Motors Europe boss Carl-Peter Foster could take the helm at Porsche should its bid to wrest control of Volkswagen fail.

By Greg Kable