If Porsche were Apple, VW would be HP

27 September 2005

Analyst firm Ovum has given its assessment of the news that Porsche is to take a 20 percent stake in Volkswagen.

The eggheads at Ovum don’t normally pronounce on happenings in the car industry, but have made an exception in this instance, with an interesting assessment penned by Richard Holway:

VW is the fourth largest car manufacturer in the world - with brands from Skoda and Audi to Bentley. It has revenues of €89bn, but makes just €700m profits. It has a market value of €16.6bn. Porsche makes the same profits on revenues of just €6.4bn and is valued at €6bn. Porsche makes just 80,000 cars a year compared to Volkswagen's five million!

We all know that these same problems exist in the volume IT hardware production and distribution sectors. So much so that IBM has sold its PC division to the Chinese. We also know that, just like in the automobile sector, it's the niche IT players that are both the most profitable and the most highly valued. Apple taking a stake in HP, or Research in Motion taking a stake in Ericsson, would be no more strange or out of proportion than Porsche taking a 20 percent stake in Volkswagen.

Mind you, the real reason for the Porsche stake is to protect Volkswagen from a non-German takeover bid. The current ‘Volkswagen law’, which gives them protection, is likely to be overruled by the European Court of Justice in 2007.

The VW law that Holway refers to states that no single shareholder can cast more than 20 percent of the votes at a shareholders’ meeting, regardless of the number of shares owned. This rule makes a hostile takeover virtually impossible, particularly as the state of Lower Saxony currently owns close to 20 percent of VW.

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