Porsche may be tempted by more than VW majority

By Christiaan Hetzner

FRANKFURT (Reuters) - Now that Porsche (PSHG_p.DE: Quote, Profile, Research) has confirmed it will go ahead with the takeover of Volkswagen (VOWG.DE: Quote, Profile, Research), attention is turning to whether 50 percent and one share will be enough.

Analysts have long said gaining majority control of Europe's largest carmaker would make the most economic sense if Porsche could also get its hands on Volkswagen's cash flows through a so-called domination and profit transfer agreement that usually requires owning 75 percent in a company.

But due to historical peculiarities at Volkswagen, the German state Lower Saxony can potentially throw a wrench in any such plans as second largest shareholder even though it has just 20 percent of the votes -- a strategic stake Lower Saxony said it will not sell since it helps to protect 82,000 jobs in the state alone at VW.

Nonetheless, a weekend report in Germany's second biggest news magazine touched off a new round of speculation after Focus wrote, without citing sources, that Porsche plans eventually to raise its Volkswagen stake to 75 percent in order to approve a domination agreement at a shareholder meeting.

Focus also reported that Porsche aimed to gain more influence by sending Chairman Wolfgang Porsche and fellow supervisory board member Hans Michel Piech, the brother of VW Chairman and former CEO Ferdinand Piech, to the VW supervisory board at the Volkswagen annual meeting on April 24.

Both companies declined to comment on the report.

Raising its voting interest in VW to a majority from the current 31 percent would normally cost Porsche about 10 billion euros ($15.4 billion) at the current market price, but Porsche finance chief Holger Haerter has secured options that are expected to effectively reduce its takeover bill dramatically.

Hypothetically, were Porsche to up its stake by another 25 percent, push through a domination agreement at the AGM and then offer minority investors in both share classes cash to buy them out as German law usually stipulates, it could cost Porsche in total about a further 23 billion euros.