Porsche Defends VW Investment Amid Criticism

Porsche is facing widespread criticism from investors over its decision to invest €3.3 billion in rival German carmaker Volkswagen, but the company claims the deal will produce "double digit" returns and was not the brainchild of Ferdinand Piech, VW chairman. Porsche, a sports car specialist, says the investment will help it save money by sharing electronic components with VW in the short term and gaining access to more of its larger rival's components over time.

Key Takeaways:

Porsche plans to invest €3.3 billion in Volkswagen, taking a 20% stake in the company.
The investment is expected to produce "double digit" returns, meeting Porsche's 15% target for return on assets.
Porsche will seek "multiple" seats on the VW supervisory board, which could be controversial due to the limited number of shareholder representatives on the board.
Porsche is considering a bond issue to maintain liquidity after the VW stake purchase.
The company expects to have €2 billion in cash by July 2007 without a new bond, despite the investment.
VW holds almost 10% of its own shares but cannot sell them except in a "business combination", leaving options such as issuing new shares to Porsche unconfirmed.

Statistics:

€3.3 billion: The amount Porsche plans to invest in Volkswagen.
20%: The planned stake Porsche will take in Volkswagen.
8.2%: The percentage increase in Porsche shares after the company announced the investment.
10%: The percentage decrease in Porsche shares on Monday amid criticism from investors.
15%: Porsche's target for return on assets.
10: The number of shareholder representatives on the VW supervisory board.
€663.25: The price of Porsche shares after the announcement.
€2 billion: The amount of cash Porsche expects to have in July 2007.

Sources:

"Porsche-Tesla Deal Makes Sense," by Holger Harter, CFO, at a test drive in Italy (no date provided).
"Piech denies involvement in Porsche-VW deal," by Manfred Ayasse, head of investor relations at Porsche.