EU and the Volkswagen Law
Volkswagen and its principal factory (with the newly built town that hosted it, called Wolfsburg today) were designed by Ferdinand Porsche and his design office, and the factory with supporting town facilities were established by the German government then led by the National Socialist (Nazi) Party in 1937–1938. When the government-owned Volkswagenwerk GmbH was privatized in 1960 into Volkswagen AG (VW AG), the German parliament enacted the law known as Volkswagen Law to govern the privatization process. In order to maintain government control in the privately owned company, the law stipulated that the votes on major shareholder meeting resolutions would require 4/5th (80%) agreement. This effectively gave any shareholder with more than 20% ownership (the government of Lower Saxony held 20.1%) a veto of any resolution that is proposed. This not only secured government control, but also prevented the possibility of a hostile takeover in the future.
When the European Union was founded in 1993, a European Union law was signed with the principle of promoting free movement of goods, people and capital within the Union. It became somewhat clear that the anti-takeover measure (the 80% agreement requirement) in Volkswagen Law would violate the European company law (as a part of the EU law), and it was feared that suitors would eventually be able to take over Volkswagen AG, as amendments to the German law and the bylaws of VW AG were seen to be likely.
In late 2005, Porsche took an 18.65% stake in the Volkswagen Group, further cementing their relationship, and preventing a takeover of Volkswagen Group, which was rumoured at the time. Hypothetical suitors included DaimlerChrysler AG, BMW, and Renault. As of June 2006, the Porsche AG stake in VW AG had risen to 25.1%, giving Porsche the veto rights along with the government.
On 26 March 2007, amidst the rumours that hedge funds were trying to takeover VW AG with the intent to dismantle and dispense the components of Volkswagen Group, Porsche took its holding of Volkswagen AG shares to 30.9%, triggering a takeover bid under German law which required other shareholders to be given the opportunity to sell the shares at least at the price paid by the new major shareholder. Porsche then formally announced in a press statement that it did not intend to take over Volkswagen Group (it would set its bid price at the lowest possible legal value) but intended to move to avoid a competitor taking a large stake.[20] Porsche's move came after the European Union announced that it intends to take steps against the Volkswagen Law.[21]
In October 2007, the European Court of Justice ruled against the law, potentially paving the way for a takeover.[22]
On 16 September 2008, Porsche increased its holdings to 35.14%,[23] in effect almost taking control of the company, with more than 35% of the voting rights. It again triggered a takeover bid, but this time over Audi AG. Porsche dismissed the bid as a mere formality, since it was Porsche's intention to keep the corporate structure of the Volkswagen Group.[24]
In October 2008, Porsche SE announced its intent to raise its stake in Volkswagen AG to 75% during 2009, and on 7 January 2009, Porsche SE's holding in VW AG was raised to 50.76%.[25] At 75% ownership level, Porsche SE would have been able to bring VW AG's cash position onto Porsche SE books.[26] Porsche's move automatically triggered a bid for Scania AB, because VW AG already had a controlling position in the Swedish truck-maker.[27] As Porsche had no strategic interest in Scania, they offered the minimum price in that mandatory takeover bid on 19 January 2009.[28] There has been some tension and anxiety among the VW AG management and the workers, who feared that Porsche might replace the management after the takeover, and it may signify a hardened production efficiency control, rejection of demands for pay rises or even personnel cuts.[29] Ferdinand Piëch (Chairman of VW AG) and his cousin, Wolfgang Porsche (Chairman of Porsche SE), also seemed to be on a collision course.[30]
However, on 13 August 2009, Scania was bought in totality, Volkswagen AG's supervisory board signed the agreement to create an "integrated automotive group" with Porsche AG, led by Volkswagen AG. Volkswagen would initially take a 49.9 percent stake in Porsche AG by the end of 2009, and it would also see the Porsche–Piëch family shareholders selling the VW distributor ownership of Porsche Holding Salzburg to Volkswagen AG,[31] which is the largest car distributor in Europe.[32]
On 5 July 2012, Volkswagen AG announced a deal with Porsche SE, resulting in VW's full ownership of Porsche AG on 1 August 2012. The deal was classified as a restructuring rather than a takeover due to the transfer of a single share as part of the deal. Volkswagen AG paid Porsche AG shareholders $5.61 billion for the remaining 50.1% it did not own.[33] The families later used the amounts they received for Porsche AG and the dealership shares to buy back the Porsche SE shares from Qatar Investment Authority as described in the following section.
In October 2013, the EU Court of Justice ruled that a redraft of the Volkswagen law "complied in full" with EU rules, bringing "the matter to a close," as the 80% agreement requirement was taken off.[34] This officially made Porsche SE the controlling owner of Volkswagen AG.
Corporate restructuring
Porsche reformed the company's structure, with Dr Ing. h. c. F. Porsche AG becoming a holding company, renamed "Porsche Automobil Holding SE",[35] and a new Dr Ing. h. c. F. Porsche AG operating company being formed in 2007.[36] Thus the operating activities are separated from holding activities of the company.[37] There was an Extraordinary General Meeting for Porsche AG shareholders which took place on 26 June 2007, at the Porsche Arena in Stuttgart, Germany to discuss the change to the company structure.
By March 2009, Porsche SE was aiming for its first ever credit ratings from U.S. rating agencies Standard & Poor's and Moody's.[38]
In its process to acquire a majority holding in Volkswagen AG, Porsche SE built up a large debt burden, aggravated by taxes due on very large paper profits on Volkswagen AG options. By July 2009, Porsche SE was faced with debts exceeding 10 billion euros.
