Porsche / VW: stalled merger hits shares

[GH85Carrera]

The Porsche Carrera GT can accelerate from 0 to 60 miles an hour in less
than 4 seconds. But while Porsche’s cars are some of the world’s
fastest, its proposed merger with Volkswagen is one of the world’s
slowest. Porsche’s Wednesday evening press release suggested the
process, which started in mid-2009, has only a 50/50 chance of
completing this year – which suggests it has no idea when, or even if,
it actually will.

The problem stems from continued legal wrangling over Porsche’s taxes
and allegations of share-price manipulation (which are denied). The
hedge funds, which claim they unfairly lost $2bn shorting VW stock, may
garner little sympathy. But spare a thought for Porsche’s minority
shareholders. With so much speculation built into the company’s market
value, it is impossible to determine how this new delay should affect
its share price. Certainly some drop on Thursday was warranted, but the
quantum – investors decided on 11 per cent – was mostly guesswork.

By contrast, VW shareholders have had it easy. The bigger carmaker can
reduce the price it offers for Porsche to take into account any
reparations that Porsche ends up paying. But lost merger synergies could
be significant. Take management’s (aggressive) annual synergy estimate
of €700m and tax and capitalise it at Porsche’s 2012 consensus earnings
multiple of 7. Applying a 30 per cent probability of the deal not
happening values the lost synergies at about €2.4bn. Thursday’s 3 per
cent drop in VW’s share price took about €1.6bn off its market
capitalisation. It looks like investors are close to the mark.

This mark, though, for both companies has bounced around considerably
for 18 months. If investors can be assured of anything, it is that the
companies’ final combined value will be almost certainly different from
what it is today.