(Sept 29): Porsche AG gained during its trading debut after parent Volkswagen AG set the final listing price for the sports-car company at the upper limit in defiance of market upheaval.
The maker of the 911 rose as much as 2.9% to €84.88 in Frankfurt, against a decline of as much as 2% in Germany’s leading DAX index. The offer price of €82.50, the top end of VW’s initial range for the shares, valued the company at €75 billion (US$73 billion).
The listing, reaping €9.4 billion in proceeds for VW, is Europe’s largest initial public offering in a decade and comes amid some of the most challenging market conditions in years.
“Today is a historic day for Porsche,” Volkswagen and Porsche Chief Executive Officer Oliver Blume said in an interview with Bloomberg Television. “The first reaction of the market is very positive and that shows the potential of our company.”
Porsche’s listing is a bold move into public markets, which have been largely shut to IPOs for most of the year, with companies shying away from seeking new listings because of the European energy crisis, rising interest rates and record inflation. The sale will help Volkswagen raise funds to plow into its electrification push, while investors get a slice of an emotive brand akin to Ferrari NV, which also managed a successful separation from parent Fiat in 2015.
“I was expecting the shares to trade in the high €80’s or low €90’s given the oversubscription and the interest from retail, said James Congdon, who runs Canaccord Genuity’s Quest research unit. Worsening economic indicators over the last few days and profit warnings may be changing investors’ appraisal of Porsche and its ability to hit its growth targets over the medium term, he said.
Following the trading start, the preferred shares of VW declined as much as 6.2% while Porsche Automobil Holding SE, the investment company of the Porsche-Piech family, slumped as much as 9.2%.
Companies raised less than US$10 billion in IPOs this year through August, an 83% drop in proceeds from the same time last year, according to data compiled by Bloomberg. Porsche’s listing is set to be the largest in Europe since miner Glencore Plc raised almost US$10 billion in a London IPO in 2011, the data showed.
“If you can pull off an IPO in such a difficult market, it shows the attractiveness of the business,” Jefferies analyst Philippe Houchois said. “Porsche is a mature, well-known business that doesn’t need to raise capital. Putting it on the market as a fully formed business — being able to pull that off is quite impressive.”
The share price puts Porsche at a valuation that’s not far from the total market capitalization of VW — a business that comprises Audi, Skoda, Seat, and the VW brand, among others. Yet for all its aggressive marketing, the listing has also garnered negative attention for its complex structure.
Volkswagen divided Porsche’s share capital into equal parts voting and non-voting shares, with the German carmaker retaining 75% ownership. Some 12.5% of total share capital — only non-voting shares — is being publicly listed, with a large portion going to four cornerstone investors. Qatar Investment Authority, Norway’s sovereign wealth fund, T Rowe Price and ADQ have together committed to take up as much as €3.7 billion of the IPO.
The other 12.5% of total shares up for grabs is going directly to VW’s largest shareholders — the billionaire Porsche and Piech family — via their investment company Porsche SE. The family already owns a 53% majority of VW’s voting shares, and under the IPO terms, they will also get 25% plus 1 share of Porsche AG’s voting stock, paying a small premium to preferred shares for a total of €10.1 billion.
Porsche SE will mostly finance the acquisition with debt capital of €7.9 billion, buying shares in two tranches starting next month with the second purchase expected in January, following a special dividend payout by VW.
Up until 2009, the family owned half of Porsche and all voting rights, but they were forced to sell the sports-car business to VW after their attempt to takeover the German carmaker went awry. The IPO restores family control over an asset that has been long out of reach: They get a blocking minority on the sports-car maker’s supervisory board, and their status as VW anchor shareholder bolsters that control.
Porsche is targeting revenue of as much as €39 billion this year and return on sales of as much as 18%, up two percentage points from last year, the company said in July. Returns are to climb above 20% in the long term. The company is still best known for its 911 model, though Porsche has expanded its lineup significantly in the past decade by adding popular sports-utility vehicles like the smaller Macan, as well as the four-door Panamera and the battery-powered Taycan.
Besides the byzantine ownership structure, governance is another issue for some investors. Porsche CEO Blume was recently elevated to chief of Volkswagen, while retaining his post at the unit.
According to an analysis from Bernstein, Porsche’s market capitalization should sit at €80 billion — just below luxury companies but at the higher end of carmakers.
“Compared to the luxury companies, Porsche still exhibits higher volatility in earnings growth and margin profile,” wrote European autos analyst Daniel Roeska. “Porsche has only grown volumes significantly by adding new formats, and that does not seem likely in the upcoming years.”