HAMBURG/FRANKFURT -- Volkswagen Group on Monday announced its intention to float sports car brand Porsche, triggering what could become one of the world's largest listings even as record inflation and a Russia-Europe energy standoff has sent European stocks tumbling.
The automaker published a so-called intention to float for an initial public offering in late September or early October to be completed by the end of the year, but added the listing and timing was "subject to further capital market developments."
Sources close to the negotiations told Reuters earlier on Monday that Volkswagen may extend the four-week period for buyers to express interest, or pull its plans altogether, should investors not show enough enthusiasm to make the move worthwhile.
"It would be the technical go-ahead, nothing more," one of the sources said ahead of the decision. "It's paving the way, but this would not guarantee that the stock market bell will ring in the end."
Investors expect a valuation between 60 billion and 85 billion euros ($60 billion to $85 billion). While the Porsche brand is strong, valuations of other luxury carmakers such as Aston Martin and Ferrari have fallen.
At the high end of estimates, the IPO could be among the largest in German history and the biggest in Europe since 1999, Refinitiv data showed.
Qatar will be a cornerstone investor intending to commit to a 4.99 percent stake in the newly listed company.
Preferred shares will also be offered to retail investors in countries in Europe including France, Spain and Italy, an attempt to tap into Porsche's loyal fan base.
Volkswagen also approved a 25 percent plus one share of ordinary shares in Porsche AG to be sold to Porsche SE, giving the controlling Porsche and Piech families a blocking minority and bolstering their push for a tighter leash on the automaker.
Volkswagen said an IPO would be a significant step in the transformation of the company as it aims to build out its software and electric vehicle offering.
Porsche's status as a luxury brand able to bump up prices makes it a money maker for the Volkswagen Group. Its operating profit jumped 22 percent in the first half of this year, in contrast to an 8 percent fall at the mass market-oriented Volkswagen brand.
"We have shown a huge resilience especially in crisis times," VW and Porsche CEO Oliver Blume said Tuesday on a call with reporters. "Looking back on the corona crisis, the semiconductor crisis, this year with the Ukraine conflict, we always have been able to show very high profit margins and we think this will be very convincing."
With the IPO the billionaire Porsche and Piech clan is set to regain direct influence over what used to be its family enterprise, some 13 years after they were forced to sell the sports-car business to Volkswagen. More than a decade ago, Porsche Automobil Holding SE tried to take over control at the much-larger Volkswagen, but the bold move failed when funding dried up during the financial crisis.
As part of the deal, VW and Porsche plan to end a so-called domination agreement that transfers profit and losses to the parent by the end of the year, to be replaced with a cooperation agreement. The company on Tuesday also filed its official intention to float on the Frankfurt stock exchange.
While more sway over Porsche is on the cards for the family, VW hopes to yield funds that will help bolster its ambitious investment plans in electric models and groundbreaking new digital features. The plan is contending with some of the most challenging market conditions in years where a slowing economy, rampant inflation and surging energy costs have largely brought public listings to a standstill.
Investors will be able to purchase preferred shares in Porsche that don't carry voting rights, while the family, which holds a 53 percent voting stake in Volkswagen through its investment firm Porsche Automobil Holding, is set to buy a blocking minority stake of 25 percent plus one share. The remaining voting stock will stay with Volkswagen.
Even as markets crater, Porsche has lined up investor interest for its IPO at a valuation of as much as 85 billion euros ($84 billion), people familiar with the matter told Bloomberg News last month. The maker of the 911 sports car and the electric Taycan has secured pre-orders that exceed the shares on offer at a valuation between 60 billion and 85 billion euros, said the people, who asked not to be identified as the discussions are private.
Big-name investors including T Rowe Price Group Inc. have already indicated interest in subscribing to the IPO in that valuation range, the people said. On Monday, VW said Qatar Investment Authority plans to buy a 4.99 percent stake subject to a cornerstone investment agreement. Porsche has also been gaging interest from billionaires including the founder of energy drink maker Red Bull, Dietrich Mateschitz, as well as LVMH Chairman Bernard Arnault, according to the people.
VW plans to offer Porsche's preferred shares also to retail investors in countries including Germany, Austria, Switzerland, France, Spain and Italy, the company said Monday, confirming an earlier Bloomberg News story.
Many European and U.S. institutional asset managers that typically invest in major German IPOs have so far shied away from making firm commitments due to corporate governance concerns, the people said. Still, Porsche has enough demand to nearly fill the so-called shadow order book at the top end of the range and is oversubscribed at the lower end, the people said.
But some investors say with European shares on a downward spiral, inflation at record highs and Russia halting gas supply, it is a dangerous time for a stock market debut.
Insisting on the listing even amid such market turbulence is exclusively in the interests of the Porsche and Piech families desire for greater control, Hendrik Schmidt, governance expert at Volkswagen investor DWS, said.
"Market conditions are currently very unfavorable," Ingo Speich, head of sustainability and corporate governance at top-20 Volkswagen investor Deka Investment, said, declining to comment on whether Deka would buy Porsche shares.
If the initial public offering is successful, Volkswagen will convene an extraordinary general meeting in December to propose a special dividend of 49 percent of the proceeds to shareholders to be distributed in early 2023.
Analysts at Stifel said: "VW should work on its timing: the plan to IPO was announced the very same day Russia invaded Ukraine, the 'Intention to Float' comes out exactly when Russia stops supplying gas to Germany."
Germany's car association expects a 4 percent drop in passenger car deliveries in Europe this year, with the hoped for post-pandemic recovery yet to emerge.
Bloomberg contributed to this report