CHRISTIAAN HETZNER

VW distances itself from IPO speculation

Christiaan Hetzner is Automotive News Europe's Germany correspondent.Christiaan Hetzner is Automotive News Europe's Germany correspondent.
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Volkswagen backed away on Tuesday from recent speculation sparked by its Porsche brand that the group might spin-off its passenger-car operations and partially float them on the stock exchange.

Earlier this month, Lutz Meschke, deputy CEO and head of finance at the sports-car maker, said he was arguing internally for an IPO, believing that a valuation of 60-70 billion euros – almost what VW itself currently fetches on equity markets -- "doesn’t sound like a stretch."

During a conference call with reporters, however, VW Group finance chief Frank Witter lashed out at Meschke in a rebuke that revealed his abundant displeasure. "I do not care for it when everyone goes around igniting all sorts of speculation," he said. "It's crucial people concentrate on that for which they are responsible, and even at Porsche there are certainly some things that bear focus despite the good results."

Analysts like Evercore ISI’s Arndt Ellinghorst believe IPOs are one advantage of the new group structure that divvy up the parent's diverse stable of passenger car brands into three pillars each with a clear focus: volume (VW), premium (Audi) and super premium (Porsche).

VW CEO Herbert Diess analogy that he aims to transform the group from a "slow and somewhat cumbersome supertanker to a powerful fleet of speedboats" would suggest the parent was indeed considering the idea, if only privately.

Starting from scratch to prepare a subsidiary for meeting the numerous requirements of capital markets is arduous and can take months though. What about when a subsidiary is already listed? For example, Audi currently trades on the stock market, albeit infrequently as VW owns more than 99 percent of the equity. Yet Audi holds its own annual general meeting and abides by the usual disclosures as stipulated by German securities laws. All VW would need to do is simply issue additional stock in a secondary offering.

Witter, however, made clear was not on the agenda: "There are no plans or considerations whatsoever to increase the free float of Audi."

While not entirely ruling out the idea in principle, Witter explained the issue was problematic since selling stock to investors in sufficient quantities could result in lost efficiencies. By listing, it might legally force Porsche to work at arm's length with Audi, or vice-versa, and hence eliminate at least some of the synergies between the two. These savings the group would subsequently forfeit would have to be judged against any potential benefits, he cautioned.

Witter however drew a distinction between the planned IPO of Traton, the group's heavy truck division mainly consisting of Scania and MAN, and its passenger car brands. The former, he explained, did not share meaningful engineering synergies with the latter, so there was no draw back to a listing.

Not only that, but the planned IPO of Traton might even be shelved.

Asked by analysts what the main impediment was to a share offering, the group CFO cited the potential valuation. If equity markets continue to slide as they have recently, investor sentiment worsens, and VW cannot secure a price it views as commensurate with the value of Traton, Witter implied an IPO was off the table – at least temporarily.

"The biggest hurdle is the market conditions. It's obvious that we are not in the position that we have to sell shares at any price," he responded.

You can reach Christiaan Hetzner at christiaan.hetzner@gmail.com.

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