OWhat takes the pulse of super-rich racing? Fast cars and stock market floats are probably at the top of the list. Porsche’s initial public offering (IPO) is well-positioned to deliver thrills on both counts when shares begin trading on the Frankfurt stock exchange on Thursday.
With an expected valuation of 75 billion euros (£65 billion), the German sports car maker spin-out from its owner Volkswagen would count as the fifth biggest floater in European history.
But there’s no denying that it’s a weird time to launch a giant IPO. After two years of central bank stimulus to support the pandemic economy, war-fueled inflation in Ukraine has raised the prospect of recessions in major markets. Automakers continue to face tough supply chain challenges.
The negotiation collapsed. Global IPOs have accounted for £97bn so far in 2022, up from £320bn last year, according to data firm Dealogic. In Europe, the difference is even starker, with floats worth a paltry £4.8bn this year, down from £48bn in 2021.
Volkswagen and Porsche have been linked since the very beginning: Ferdinand Porsche founded an automobile company in the 1930s, before designing the original “people’s car”. Why would he choose this moment to undo this pairing?
One reason is quite simple: Volkswagen needs money. It could receive up to 19.5 billion euros as part of the deal (although it will pay almost half as a special dividend). The world’s second-largest automaker by volume has moved into production of electric-only models, stung by fines and reputational disaster from the diesel emissions fraud scandal. This electrification push means it needs money to re-equip factories.
Another reason is that other brand with a black prancing horse on its logo: Ferrari. The Agnelli family who run the Italian automaker have made a big deal out of convincing drivers and investors that Ferrari is a maker of luxury goods rather than glorified metalheads. Ferrari shares trade at 38 times earnings per share, compared to a measly four times for VW.
Volkswagen hopes an independent Porsche could close some of that gap, offering a practical boon. Whether this is possible is another matter. Porsche’s bulky Cayenne SUVs (“more practical and practical” in the slightly damning words of an investment banking analyst) and even its new Taycan electric cars are becoming more commonplace – hardly exclusive luxury items .
Nor will Porsche get rid of the chains of an overbearing parent. The Porsche-Piëch family, Volkswagen’s largest shareholder, will receive about a quarter of Porsche’s voting shares, a decade after ceding control to VW. Oliver Blume was elevated to head Volkswagen when Herbert Diess was given the boot in July, but also remained atop Porsche. He will keep both jobs after the float. Maintaining close ties with giant Volkswagen could be useful as Porsche strives to make 80% of its cars fully electric by 2030, but it’s not a clean break from the past.
Still, it’s no frothy float from a startup that never turned a profit. Porsche made revenues of €33 billion and profits of €4 billion in 2021, and it sells genuine name-brand models such as the 911, mentioned in the float’s predicted P911 ticker. Anticipated demands for the shares far exceeded supply, and a series of state-backed investors pledged their support. But even if stocks boom and investors and bankers reap a juicy gain, it would be unwise to take this reshuffle in dynastic fortunes as an indicator of a healthy broader market.