Porsche to start $7 billion share sale to cut debt
FRANKFURT – Porsche SE, the sports-car maker that plans to merge with Volkswagen AG, will start a 5 billion-euro ($7 billion) share sale March 30 to reduce debt.
The carmaker plans to sell shares at 38 euros apiece to current owners, Porsche said in a statement. One existing share carries the right to subscribe to 0.75 new shares. The price is a 32 percent discount to the preferred stock’s close on March 25 of 56.22 euros.
Porsche, which plans to use the proceeds to cut debt to about 1.5 billion euros, said last week a timetable to sell the shares still stands amid volatile financial markets following the Japanese earthquake. Porsche and Volkswagen agreed to combine in August 2009 after the maker of the 911 sports car racked up more than 10 billion euros of debt in an unsuccessful attempt to gain control of VW.
“It’s not the perfect timing given how volatile the market has been in recent weeks, but they’re under pressure to get this done,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler. “They’re averting the much greater damage that would occur if the merger were pushed back for months.”
The preferred shares fell as much as 2.67 euros, or 4.8 percent to 53.55 euros and traded down 2.8 percent at 54.67 euros as of 13:47 CET in Frankfurt, valuing the sports-car maker at 9.6 billion euros. Porsche had gained 27 percent in the last year prior to today.
Porsche, Piech Families
Porsche will issue as many as 131.25 million shares, evenly split between preferred and common stock, the company said in a statement late Sunday. The common shares are controlled by the Porsche and Piech families. The subscription for the sale begins March 30 and ends April 12. New shares will carry dividend rights for the shortened 2010 fiscal year.
“Equity markets are now focusing on positive fundamentals, that’s what’s helping to keep them from giving up an awful lot of ground and they haven’t,” said Mike Lenhoff, London-based chief strategist at Brewin Dolphin Securities Ltd.
The Porsche and Piech families may provide 2.25 billion euros to the share sale while Qatar Holding LLC, part of the country’s sovereign wealth fund which controls 10 percent of Porsche’s voting stock, may contribute 250 million euros, Hans Dieter Poetsch, CFO of VW and Porsche SE said March 17.
David Lesne, a London-based analyst at UBS said in a written note that rights-issue terms announced by Porsche are “disappointing,” referring to the size of the discount and lack of detail on the planned merger process.
The VW-Porsche combination, originally scheduled for completion in the second half, will probably be delayed into next year because of German legal obstacles. An investigation into share-price manipulation allegations will likely push the deal’s completion into 2012, Porsche said Feb. 24.
All new preferred shares will be underwritten by a banking syndicate led by Deutsche Bank AG, JPMorgan Chase & Co. and Morgan Stanley, the carmaker said. Deutsche Bank will carry out the sale of common shares.
Net debt at Porsche’s holding company increased to 6.34 billion euros as of Dec. 31 from 6.05 billion euros on July 31 because of tax repayments. Porsche shareholders last year approved the stock sale to raise the funds.
The cost of insuring Porsche debt from default dropped 9 basis points to 90, according to CMA prices for credit-default swaps. A basis point on a contract insuring 10 million euros of debt for five years is equivalent to 1,000 euros a year.
VW now owns 49.9 percent of Porsche’s carmaking operations. Proceeds from the share sale will help pay back a 2.5 billion-euro bank loan expiring at the end of June.
“The company will use all of the net proceeds for the repayment of liabilities under its credit facilities,” Porsche said in the statement.
Full-year revenue at Porsche’s auto-making division may exceed last year’s levels, CEO Matthias Mueller said this month. The carmaker posted record revenue of 3.87 billion euros for the August-to-December period. Porsche’s holding company expects another profit in 2011, CFO Hans Dieter Poetsch said.
Short sellers of VW stock have sued Porsche in the U.S., claiming the carmaker secretly piled up VW shares and later caused the investors to lose more than $1 billion. At the same time, institutional investors in Germany are seeking 2.5 billion euros in damages over the matter. Porsche has repeatedly denied all the allegations.