New Porsche/VW deal triggers power test

By Edward Taylor and Jan Schwartz

FRANKFURT/HAMBURG (Reuters) - Porsche's plan to merge with Volkswagen (VOWG.DE: Quote, Profile, Research) triggered a power struggle on Thursday when labor leaders and a key politician threatened to veto a deal unless they win key concessions.

Laden with debt, Porsche Automobil Holding SE (PSHG_p.DE: Quote, Profile, Research) has abandoned its original plan to seize control of Europe's largest automaker and now seeks a compromise with Volkswagen, VW's home German state and powerful labor leaders.

Its new proposal for a merger, to be thrashed out over the next four weeks, foresees creating an "integrated car manufacturing group."

Porsche will struggle to dictate terms of a new deal, analysts and bankers close to the deal say.

"Volkswagen and Lower Saxony are now in the driver's seat," Credit Suisse analyst Arndt Ellinghorst said on Thursday. "Porsche needs VW's cash, and VW doesn't need Porsche's debt."

Porsche declined to comment.

Porsche shares closed down 17.9 percent at 46.77 euros. Volkswagen ordinary shares fell 1.4 percent, while its more liquid preferred stock (VOWG_p.DE: Quote, Profile, Research) gained 1.5 percent.

Porsche ran up 9 billion euros ($11.99 billion) in debt acquiring a 51 percent stake in VW and was forced to abandon its target of stocking up to 75 percent.