Tuesday, September 27, 2005

Porsche to raise VW stake, ward off raiders

By Mark Landler / New York Times News Service

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FRANKFURT, Germany -- Porsche's surprise announcement that it planned to amass 20 percent of mass-market automaker Volkswagen is reverberating through the German auto industry, challenging long-held assumptions about Porsche.

On Monday, shares of Porsche plunged more than 10 percent, their steepest drop in two and a half years, finishing at 607.64 euros ($731.05).

Several analysts lowered their ratings on the stock and warned that marrying the maker of the 911 Turbo with the maker of the Beetle would inevitably tarnish Porsche.

"There's hardly any business rationale for this deal," said Arndt Ellinghorst, an analyst at Dresdner Kleinwort Wasserstein, in Frankfurt. "It really dilutes the image of Porsche, and raises questions about whether the management has control over the capital of the company."

Porsche said it was making the investment to head off a potential hostile takeover of Volkswagen, securing its long-term ties to an important partner. For now, Volkswagen is shielded from takeovers by a German law, but that statute is being challenged in court.

The investment could cost upward of 3 billion euros ($3.6 billion), based on the market value of Volkswagen's stock, which barely moved on Monday, closing at 51.51 euros ($61.97). Porsche insists it can finance the deal internally and still pay for other projects, like a sports coupe, the Panamera, which it plans to introduce in 2009.

Porsche said this month sales for the year ended in July were up 6.8 percent.