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Porsche seeks to keep VW deal alive with cash call

Published 03/28/2011, 07:41 AM
Updated 03/28/2011, 07:44 AM
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* Delevering balance sheet a key hurdle for VW merger

* Rights issue success seen at 38 euros/share price

* Porsche shares down 2.9 percent at 54.57 euros

By Christiaan Hetzner

FRANKFURT, March 28 (Reuters) - Porsche SE is driving ahead with a 5 billion euro rights issue in an attempt to keep hopes of a merger with carmaker Volkswagen alive by paying off a chunk of its heavy debts.

Investors took the planned capital hike in their stride and shares in the sports car maker fell by just 3 percent on Monday.

Porsche is offering holders of ordinary and preference shares the chance to buy three shares for every four they own at 38 euros ($53.4) per share. At Friday's closing share price of 56.22 euros, this represents a discount of 32.4 percent.

The German company is having to turn to shareholders after it ran up crippling debts of more than 10 billion euros in a botched attempt to buy VW. It raised its interest to just over 50 percent of VW's voting stock in early 2009, but nearly bankrupted itself in the process.

Porsche was eventually forced to seek a merger with its larger rival, but this deal has since been put in doubt by both financial and legal hurdles.

Half of the amount raised will come from the Porsche and Piech clans, along with shareholder Qatar, which control Porsche SE. The families have committed to buying the rights on Porsche's ordinary shares.

The cash will be used to redeem bank loans and pay down debt, a core requirement for VW shareholders before they agree to folding Porsche into their own cash-rich company. Porsche's net debt totalled 6.34 billion euros at the end of 2010.

"This is the announced step in debt relief," said Michael Muders, fund manager at Union Investment, which owns 348,000 Porsche shares according to Thomson Reuters data.

"But this does not say anything about the likelihood of the merger with VW, which hinges mainly on legal issues," he added, referring to ongoing court disputes with U.S. hedge funds suing for billions in damages.

A merger between VW and Porsche also needs to be given the green light by VW's preferred shareholders with an 80 percent approval. This is considered unlikely until Porsche has cleaned up its balance sheet entirely and resolved issues over tax liabilities with the German authorities.

Although the mark-down was less that that offered on some of the big capital raisings during the financial crisis of 2009 when discounts of 40 percent were common, analysts said the discount reflected these other risks.

"(It) was more than the 42 euros per share I was anticipating, but in view of the potential risks this should help facilitate the sale," Metzler Bank analyst Juergen Pieper said.

Goldman Sachs calculated the theoretical ex-rights price (TERP) at 48.14 euros per share.

Shares in Porsche traded down 2.9 percent at 54.57euros by 1201 GMT, underperforming a 1.4 percent drop in the European autos index.

DIVIDEND GAIN

Analysts said the relatively small fall in Porsche's share price was because investors were looking at the improvement it would bring to the carmaker's balance sheet.

"Investors are currently focusing more on the stabilization of the balance sheet and this is stopping a lot of investors from pulling out of Porsche immediately," said Roger Peeters of CB Seydler.

Peeters said investors could also sell their subscription rights for the new shares on the open market and lock in a quick profit.

Porsche is offering the shares with full dividend rights for the shortened business year that ended in December, meaning subscribers will get an immediate cash return in mid-June, although the amount has not been announced.

The rights issue is just one of the measures taken to cut Porsche's debts. The Porsche and Piech clans sold off their independent dealership group for 3.3 billion euros earlier this month and half of the Porsche sports car business for another 3.9 billion, both to VW. ($1=.7117 Euro) (Additional reporting by Arno Schuetze and Josie Cox; Editing by Alexander Smith)

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