The Porsche Takeover Attempt: A Story of Nepotism and Mergers

In 2009, Ferdinand Piech, the chairman of Volkswagen's supervisory board, attempted to take over the company with the help of his son, Hans-Joachim Piech. The plan was to merge Porsche, a subsidiary of Volkswagen, into the larger company. However, the deal hit several roadblocks, including the infamous Volkswagen Rule.

The Volkswagen Rule, implemented in the 1960s, ensured that any government-owned entity with a 20% stake in Volkswagen had veto power and influence within the company. Christian Wulff, the president of Lower Saxony, a state in Germany, owned 20% of VW shares and was determined to prevent Porsche from taking over. Wulff advocated for stopping the Porsche takeover and required that Porsche own at least 80% of shares to claim VW as their own. This increase in stake made the deal even more complicated.

Meanwhile, Porsche had accumulated around $13 billion in debt during the economic crash, which they needed to pay off. Wendelin Wiedeking claimed he was surprised by the harshness of the banks but had a plan to squirrel out of the bind he found himself in. If Porsche could acquire that 80% stake, they would be able to tap into VW's pockets and find $14 billion in cash. The problem was that nobody in Europe wanted to give Porsche any more loans. They turned to Qatar for help, arranging a deal with several wealthy investors to secure the funds needed.

However, just as everything seemed to be falling into place, Germany stepped in. Christian Wulff, along with Angela Merkel, the chancellor of Germany, blocked the deal. The only reason they were able to do this was because of the Volkswagen Rule. However, Ferdinand Piech had an ace up his sleeve. He chose to side with Christian Wulff and asked the investors from Qatar to divert the funds to VW instead of Porsche.

Piech's decision left Porsche in a precarious position. They were heavily in debt, out of cash, and suffering from Christian Wulff's veto powers. Fortunately for Piech, he had played Wulff's side by proposing a merger between Volkswagen and Porsche on the condition that VW would buy Porsche and become one company under the Volkswagen name. The Porsche and Piech family would then own over half of VW, as they owned so many shares to begin with. Christian Wulff and Lower Saxony would keep their 20% stake, and the investors from Qatar would pay off the debts for a 17% share in the new Porsche/VW merger.

The resulting merger was mutually beneficial for both companies. Porsche remained under the Volkswagen name, along with other big brands like Lamborghini, Bentley, and Audi. The deal marked a new era for Porsche, and they have been pumping out some incredible cars ever since. Today, the company is still thriving, thanks to the partnership between Porsche and Volkswagen.

It's worth noting that Piech's decision to side with Wulff was not without controversy. Many people called Porsche, "the hedge fund that sold cars on the side," a nickname that stuck due to their questionable business practices. However, in hindsight, the merger has proven to be beneficial for both companies. Porsche continues to produce some of the most iconic and sought-after sports cars in the world, while Volkswagen remains a dominant force in the automotive industry.

As for Ferdinand Piech, he may have played a tricky game by siding with Wulff, but it ultimately led to a more stable future for the company. He remained chairman of Porsche until 2012, when he stepped down and handed over control to Matthias Müller, who later took over as CEO. Today, Piech is a respected figure in the automotive industry, known for his business acumen and strategic thinking.

The story of the Porsche takeover attempt serves as a reminder that even the largest and most powerful companies can face unexpected challenges and obstacles. However, with the right leadership and strategy, it's possible to overcome these hurdles and emerge stronger on the other side. As we look back on this chapter in Volkswagen's history, it's clear that Piech's decision to merge Porsche into the larger company was a bold move that ultimately benefited both parties involved.

WEBVTTKind: captionsLanguage: en- It's 2008, your parentsare freaking out and fightingbecause they're losing their jobsand have to feed you ChefBoyardee for every meal.The world's economy is crashing.Meanwhile in Germany, a littlecar company called Porscheis finalizing what should be oneof the most deceptivelybrilliant economic takeoversin history.(camera clicking)Volkswagen, Germany's automotive gianthad been suffering amidstthe economic crisis,and was on the brink of bankruptcy,and Porsche wanted to buy them.So how did they plan on taking VW over?How did Volkswagen becomethe highest valued companyin the world for a day, and howdid Porsche make $11 billionbecause of this?And finally, who prevented Porschefrom taking Volkswagen over completely?We're gonna find out.(bass thumping music)Thank you to Dr. Squatch forsponsoring today's video.As an expert soaptologist I can tell youthat the soap currently in your showeris probably not great.Most of those big soapbrands use harmful 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Yes, yes I am.Porsche and Volkswagen havean interesting relationshipto say the least,and the story of how Porschemanaged to turn Volkswageninto a hedge fund's worstnightmare is full of twistsand turns, so pay attention.To understand the schemePorsche tried to pull on VW,we need to understand what a stock shortis so this all makes sense.You've definitely heard this term beforebecause of the wholeGameStop stock incident,but almost the exact samething happened between Porscheand Volkswagen, years earlier.We'll start with the basics.When a company is publiclytraded, it sells shares,or stock, which represents a fractionof ownership in the company.A company does this in orderto gain additional fundingto invest in themselvesto create new thingslike new products, or buildings,or whatever else theyneed to grow the business.If the business continues tomake money, the investor wins,and the company wins.Similarly though, ifthe company loses money,the investors lose a percentageof their stock's worth.A short sell occurs when a hedge fund,which is basically a group of investors,chooses to borrow shares ofa company from an account,agreeing to pay back theshares at a later date,with interest of course.They sell the shares on the market,which puts them in an interesting placebecause they've promisedto give back the sharesnot the price they sold those shares for.So if the value of their shares dropsit's cheap for the hedge fundto buy the shares off the marketand return them to the account.All the money they saved inthe process is theirs to keep.A squeeze happens when theprice of the share goes up,instead of down, which is notwhat the hedge funds expected.The hedge fund needsto buy back the sharesat a higher price, in anattempt to cover their losses.The more these hedge funds purchase,the higher the share price becomes,because of the increased demand.This creates a scarcityof shares on the market.With the share pricesskyrocketing, the company,in this case, Volkswagen,gains tremendous value, almost overnight.So how does the stock pricestart going up anyway,wasn't Volkswagen doing awful in 2008?Well, enter Wendelin Wiedeking,say that 10 times fast,the CEO of Porsche at the time,and the man who had rescuedPorsche from its near bankruptcyand irrelevancy.Wendelin Wiedeking had beenreviving the brand for years,introducing cars like theBoxster and the Cayenne,which put Porsche in thebest financial positionit had been in a long time.For more on that turnaround,check out this episode right here.This time though, Wendelin andhis team had their eyes seton one thing, Volkswagen.It was affordable at the time, mostlybecause VW was on the brink of bankruptcyand bleeding money, buthey, cheap is cheap.They were also like bestfriends with each other,and owning VW would havebeen mutually beneficialfor both companies.Earlier in 2005, Porscheannounced they had bought 20%of VW, emphasizing it wasnot to take them over,but rather to help VW stay independent,since Porsche relied on them heavily.Stock prices stayed stable sincePorsche was buying so many,but it was pretty suspicious that Porschewas dumping billions of dollarsinto one of the least profitablecar companies in Europe,with no clear path togetting in the black again.See, in 2006, Porsche grewtheir stake from 20% to 25%,still claiming they were not intendingto take over Volkswagen.No sir, not us, we wouldnever do such a thing.By 2007, Porsche had a 31% stake,and share prices had doubled since Porschehad started buying shares.By March 2008, Porsche had authorizationfrom their board of directorsto acquire 50% of VW.Volkswagen, who was sofinancially weak at that point,was growing in value because of Porsche,and hedge funds weresalivating at this opportunityto short sell, they just knew it was boundto start going down at some point.Wall Street believed VWwas severely overvalued,and hedge funds began to take out loansin order to short Volkswagen.This led to 12.8% of VW sharesbeing shorted by hedge funds,with the hopeful predictionthat Volkswagen would lose valuebecause of its poor performance.It had to go down, right?What could possibly gowrong for the hedge funds?Nothing, except Porsche dropped oneof the most shockingeconomic bombs of the decade.On October 28th of 2008,Wiedeking revealed Porschenow owned 42.6% of Volkswagen,with 31.5% available in stock options,which is the right topurchase stock at a set price,leaving Porsche owning awhopping 74% of Volkswagenand intending to increase that to 75%.This would allow Porschecertain execution rights,which we'll talk about in a second.The other 20% was locked upwith the German governmentand 5% were locked up in index funds,this left almost 1% of sharesavailable on the market.This was a huge issue when 12.8%of the shares were on loan,intending to be shorted later.Investors went into a panicked frenzywhen they discovered thatonly 1% of the stockswere available.They started buying sharesfrantically to cover their costs,and the severe scarcityof the shares comparedto the demand skyrocketedshare prices from $200 to $1000in a single day.With share prices skyrocketing,VW became the highestvalued company in the worldfor a few days, and Porschemade over $11 billion dollarsalmost overnight.(money bag thudding)(coins clinking)Remember what happened withGameStop earlier this year?This is very similar.In this case, GameStop was Volkswagen,and Porsche was the peopleon Reddit trying to buy GameStop shares.The same kind of short happened,and GameStop shot up in a day.Compare this to a successfulcompany like Apple,which takes years to see the same growththat VW did in a single day.So why didn't the hedge funds,or anyone else for thatmatter, see this coming?Surely, they wouldn't havebet on a stock going downif they had known Porsche was gonna buy upso many shares.Unfortunately for ourinvestors at the hedge funds,Porsche sort of lied to them.See, by German law,Porsche was not requiredto disclose the informationabout the amount of stakein VW they had been acquiring,and despite previously claimingthat they had nointention to take it over,it became pretty obviousthis was Porsche's intention.So, how come they weren'table to take over Volkswagen?Well, this is where thingsget a little more spicy.(bouncy music)Back in 2005, when Porschebought enough shares in VWto become the largest stakeholder,many people were upset.The chairman of Volkswagenwas a man named Ferdinand Karl Piech,the grandson of Ferdinand Porsche.Piech, I'm gonna say it Piech, okay?It's Ferdinand Piech, Ican't do that Piech soundthat Germans can when they say it.Piech owned 10% of Porsche at the time.Now, let me reiterate this,the chairman of Volkswagen,was the descendant tothe throne of Porsche,and owned 10% of Porsche as well.Piech was also the formerdirector of engineering at Porscheand was previously inline to become the CEO.Ferdinand Piech hadhis hands in both poolswith the ability to avoid atakeover attempt by Porsche,while also having theability to majorly profit offof the demand for VW sharessince he was awarded stockas compensation for his position.He was seriously double-dipping.Many people were upset, for good reason,because it looked like a deceptive,nepotistic power moveby the Porsche family.Piech had his hand in both companies,giving him a little too much influence.Christian Wulff, and rememberthat name, it's important,the president of LowerSaxony, a state in Germany,which at the time, owned 20% of VW shares,wanted to replace Ferdinand Karl Piechdue to this obvious conflict of interest.But Piech had a trick up his sleeve.A trump card that would come into playat the perfect moment.Unfortunately, there werestill two roadblocks in the wayfor the Porsche and the Piech family,which prevented them from taking over VW,The first reason beingthe somewhat-antiquatedVolkswagen Rule.When government-owned Volkswagenwent private in the '60s,parliament made some lawsto keep Volkswagen under their influence.Any government party thatowned 20% of VW had veto powerand influence within the company.In this case, it was ChristianWulff of Lower Saxony,that state in Germany.The government had no intentionto sell VW to Porsche.Christian Wulff advocated to stop Porschefrom taking over as well,requiring that Porsche neededto own 80% of shares, and not 75.Porsche now needed evenmore shares if they wantedto claim VW as their own.The second issue was thatPorsche had taken huge loanswhen acquiring VW shares,and with the increasingprice of these shares,Porsche had accumulated around $13 billionin debt during the economic crash,and the banks wanted it back.Wendelin Wiedeking claimed hewas surprised by the harshnessof the banks, but he hada plan to squirrel outof the bind he now found himself in.If Porsche could acquire that 80% stake,they would be able totap into VW's pockets,and find $14 billion in cash.He could then pay off Porsche's debt.The problem was, nobody in Europe wantedto give Porsche any more loans.So where could they go to find some?None other than the small,Middle Eastern peninsula country of Qatar.Porsche actually managedto arrange a deal in Qatarwith several wealthy investors in orderto get themselves the moneythey needed to take over VW.This would have solved all their problems,and Porsche would now own VW.But right before everythingwas signed and agreed on,Germany stepped in.Christian Wulff, along with Angela Merkel,the chancellor ofGermany, blocked the deal.They were only able to do thisbecause of the Volkswagen rule,which we just talked about.But it gets more complicated, Piech,the tricky guy who has hishand in Porsche and VW,chose to side withChristian Wulff this time.That's right, he sided withthe man who wanted him removedfrom his position, andthey asked the investorsfrom Qatar to divert the fundsto VW instead of Porsche.What was Piech thinking?And where did this leave Porsche?Well, not in a good spot.Porsche was heavily in debt, out of cash,and suffered from ChristianWulff's veto powers.Fortunately, our friend Ferdinand Piechhad an ace up his sleeve.Piech played Christian Wulff's side,proposing a merger betweenVolkswagen and Porsche,on the condition thatVW would buy Porsche,and become one companyunder the Volkswagen name.The Porsche and Piech familywould then own over half of VW,since they owned so manyshares to begin with.Christian Wulff and Lower Saxonywould keep their 20% stake,and the investors from Qatarwould pay off the debtsfor a 17% share in thenew Porsche/VW merger.VW didn't have much ofa choice, and honestly,neither did Porsche.The best option was tomerge the companies,and that's what happened.Today, Porsche still remainsunder the Volkswagen name,along with other bigbrands like Lamborghini,Bentley and Audi.The merger had beenvery mutually beneficialfor both companies,and Porsche has been pumpingout some sick cars ever since.I don't think it was a bad thing.Many people used to callPorsche, the hedge fundthat sold cars on theside and now you know why.That's the story, that's the end.Thank you very much forwatching this video.If you haven't subscribed to Donut yet,we just hit five millionsubscribers not too long ago,and it's not too late tohop on board the train.Check out these videos about Porsche.We've done a lot of them, Ilove talking about Porsche,great car company.Be kind, see you next time.