Mar 29th 2007 | FRANKFURT
From The Economist print edition
A forthright boss decides that small is not always beautiful after all
WENDELIN WIEDEKING, the punchy boss of Porsche, the world's most profitable small carmaker, has often described his firm as a David amid the industry's Goliaths. In 2002 he published “The David Principle”, a book of essays on that theme by some of the great and the good. Time and again, he believes, he has shown that the giants “can't simply flatten all around them and think they will survive”.
No question who's on topSo why has Mr Wiedeking now made a takeover bid, albeit not a serious one, for Volkswagen (VW)—the biggest carmaker in Europe? The official answer is the one he has given since he started buying VW shares in September 2005: to secure his co-operation agreements with VW. Those involve, for example, the chassis design, or platform, on which the Porsche Cayenne sport-utility vehicle, the VW Touareg and the Audi Q7 are based; and the new platform which will underpin the Panamera, a forthcoming Porsche sports car.
An unsettling raid on VW shares, or a threatened break-up by a hedge fund or private-equity buyer, could spell an end to those agreements, argue people at Porsche. In the face of that threat, spending around €5 billion ($6.7 billion) to buy 30.9% of VW and secure the agreements is a good deal, they say. Porsche's 30.9%, combined with the 20.3% held by the government of Lower Saxony, provides majority control against all comers—provided the firm and the government continue to see eye to eye.
That may not be so for ever. Christian Wulff, the premier of Lower Saxony, said on March 27th that he would not rule out raising the Land's stake to 25%. He does not want to appear as powerless on VW's supervisory board against Porsche's influence—embodied in the chairman, Ferdinand Piëch—as he did last year when Mr Piëch high-handedly replaced VW's chief executive with another of his choice.
Mr Wiedeking and Holger Härter, his finance director, would not have taken their VW stake to over 30% this week (triggering a mandatory takeover bid) if they had not been sure of two things—besides the approval of Mr Piëch, whose family owns and controls Porsche. The first is that the market price of VW shares was well above the mandatory offer price of €100.92. The second is that sooner or later the government will abolish the 1960 Volkswagen Law, which limits the voting rights of any shareholder to 20% and gives the federal and regional governments seats on the supervisory board. In February the advocate-general of the European Commission gave a damning opinion of the law, on the grounds that it deters foreign investors. The case is expected to be decided by the European Court in the next few months.
Porsche's move superficially resembles those by hedge funds and other activist investors recently to influence strategy at German firms including Deutsche Börse, IWKA, CeWe Color and Techem. But Porsche's motives are very different: it has increased its stake to prevent a change in strategy at VW, rather than encourage one. Mr Wiedeking appears to have no ambitions to restructure VW or to run it himself.
Even so, the David moniker no longer quite fits. For years Mr Wiedeking has scoffed at the notion of quarterly financial reporting, even though that has excluded Porsche shares from any stock indexes, such as the DAX and MDAX, run by Deutsche Börse—probably increasing the cost of capital. This week Porsche challenged Deutsche Börse in the administrative court in Cassel for requiring quarterly reporting as a condition of entry and lost, but will almost certainly appeal. His desire for a listing suggests that Mr Wiedeking now wants to join the Goliaths.
Mr Wiedeking is one of those rare beasts in the corporate jungle who have not yet had their come-uppance. He is widely revered for his forthrightness and his leadership of Porsche, from the dark days of near-bankruptcy in 1993 when he took over, to years of growth and glowing results today. So it would be a pity if this David overreached himself and fell victim instead to another phenomenon, known as the Peter principle: promotion beyond one's level of competence.
