Porsche Plans Blockbuster IPO in the Coming Weeks ⎮ October 2022
According to the article, the iconic Porsche brand is officially going public despite stomach-churning stock market turbulence that's frozen out other big deals.
October 2022 | Volume 14, Issue 2
According to the article, the iconic Porsche brand is officially going public despite stomach-churning stock market turbulence that's frozen out other big deals.
Volkswagen first started looking at spinning off the high-performance automaker in February, just as Russia's invasion of Ukraine jolted investors.
In a recent statement, Volkswagen said it had decided to press ahead with the initial public offering later this month or in early October, "subject to further capital market developments."
Volkswagen has also said it plans to use the proceeds from the IPO to bolster its efforts to build more electric vehicles. The company intends to dole out €89 billion ($88.4 billion) over the next five years on developing EVs, about half of its planned spending in that time. It wants EVs to represent a quarter of sales by the end of 2026.
Reuters has reported the initial public offering could value Porsche as high as €85 billion ($84.4 billion), and that Volkswagen could raise more than €10.5 billion ($10.4 billion). That would set it up to be one of Europe's biggest IPOs ever, according to data from Dealogic.
The blockbuster listing will go ahead even as recession fears, soaring energy prices in Europe, and uncertainty about plans by central banks to slow inflation roil markets. That's slowed most dealmaking to a crawl, as companies wait for more certainty before pursuing mergers or public offerings.
A leadership shakeup at Volkswagen has added to uncertainty over the listing. Oliver Blume took the reins as chief executive of the German auto giant this month after Herbert Diess was ousted from the job in July.
Note: As this newsletter proceeds to publication, for the most recent update available regarding the Porsche IPO, please see the following October 2, 2022 article from Reuters:
“Porsche Shares Fall Below IPO Pricing”
https://www.reuters.com/markets/europe/porsche-shares-fall-below-ipo-pricing-2022-10-03/
According to the article, shares in sports car brand Porsche fell below its listing price on Monday, October 3, 2022, the third day of trading since its $72 billion listing by parent company Volkswagen.
The closely watched initial public offering (IPO) was the largest listing in Germany in more than 25 years, despite a backdrop of volatile global markets.
On October 3, Porsche shares fell to 81 euros, 1.8 percent below the IPO pricing of 82.50 euros. At 1100 GMT they were trading at 81.48 euro per share, down 1.1 percent.
The wider market was also down, with the pan-European STOXX 600 index losing 0.6 percent while a sub-index of auto stocks fell by about 1.1 percent.
One banker involved in the Porsche IPO said that while shares in the carmaker were down, they are doing well compared with much bigger drops on the wider market over the past three days.
Shares in Porsche avoided dropping below its IPO pricing for the first two days of trading on Thursday, September 29 and Friday, September 30, closing flat at 82.50 euros both days.
A second banker involved in the deal added that risk sentiment had probably taken over, explaining the fall in Porsche shares on October 3.
Since the company made its debut, the wider auto sector is down about 5.6 percent, while shares in parent Volkswagen are down about 10 percent.
As standard in an IPO, the deal includes a so-called greenshoe option allowing a stabilization manager to purchase shares in the market at the IPO price in the first 30 days after listing to help provide price stability.
The greenshoe option on Porsche's IPO is equal to about 15 percent of the base offering, which will grow from 8.2 billion euros to 9.4 billion euros if the option is exercised fully.
Discussion Questions
1. What does it mean for a company to “go public?” What is an initial public offering (IPO)?
A company “going public” means that it is choosing to issue stock for sale to the public. An initial public offering (IPO) is the manifestation of “going public,” with management deciding to transition the company from private ownership to public ownership.
2. In your reasoned opinion, would “going public” help or hurt the Porsche brand?
This is an opinion question, so responses may vary. In your author’s opinion, “going public” will not hurt the Porsche brand so long as the IPO is successful (meaning that there is high demand for the stock, which translates into high Porsche stock prices). Based on the October 2, 2022 article from Reuters regarding immediate post-launch of the Porsche IPO, although the IPO has been very successful in generating revenue for Volkswagen (the company that owns Porsche), more time will be needed to evaluate any sustained impact the IPO will have on the Porsche brand and Volkswagen’s value as the stock trades in the secondary market (i.e., the stock market).
3. As the article indicates, “(u)p to 12.5 percent of Porsche will be offered to investors in the form of preference shares, with nearly half of the proceeds "of a successful IPO" to be distributed to Volkswagen shareholders in the form of a special dividend. Volkswagen has also said it plans to use the proceeds from the IPO to bolster its efforts to build more electric vehicles. The company intends to dole out €89 billion ($88.4 billion) over the next five years on developing EVs, about half of its planned spending in that time. It wants EVs to represent a quarter of sales by the end of 2026.” Comment on the details of the IPO, including the planned use of the funds generated from the IPO.
In your author’s opinion, this sounds like a well-founded plan in the sense that (1) it raises revenue for Volkswagen; (2) investors will receive a share of the IPO success in the form of a special dividend (which represents a return on their investment); and (3) Volkswagen plans to use the revenue to develop, manufacture, and sell electric vehicles. If all goes as planned (i.e., the IPO is successful), this should be a “win-win” for both Volkswagen and its stakeholders, including its shareholders, its consumers, and the public at large.
