Porsche on the financial brink

http://www.bloomberg.com/apps/news?pid=20601100&sid=aMBk...

I'm still a bit confused as to what caused the takeover to fail. The Bloomberg article makes it seem that it was mostly a regulatory problem. Or is it more that Porsche doesn't have the cash to exercise its options in VW?

Edit: the Economist article posted by anigbrowl explains it better.

Three things thwarted Porsche. In January the firm increased its stake in VW to its present 50.8%, almost tripling its net debt to €9 billion in the process, just as sales at Porsche’s car business were tumbling—leaving less cash to pay the interest on the debt. Second, conditions in the credit markets made it harder to go on borrowing more. On March 24th Porsche was able to roll over its existing loan only by pledging its VW shares to the banks and promising to pay back €3.3 billion within six months.

Third, Porsche was counting on the repeal of the so-called Volkswagen Law that restricts individual shareholders to 20% of the voting rights, regardless of the number of shares they own, and gives the state of Lower Saxony a veto on major decisions. The law’s abolition would have allowed Porsche to use its anticipated 75% stake in VW to get its hands on the bigger company’s cash reserves, which stood at €10.7 billion at the end of the last quarter.

But despite a recent amendment by the German federal government, the law still guarantees Lower Saxony’s veto. The state’s premier, Christian Wulff, sees Porsche as an opportunistic would-be plunderer. With his support and that of Bernd Osterloh, the head of the powerful VW works council, Mr Piëch feels he is in a position to dictate terms to Porsche.

And if you are really interested in capital machinations and strategy, I would recommend reading all the Economist stories in chronological order (use Google rather than their lamentable in-house search engine) for the blow-by-blow treatment. It's a great story which will likely become the subject of a book next year, and might even make a good movie. Sadly, one German investor was so badly hit by Porsche's aggressive financial strategy that he committed suicide after losing billions of Euro when Porsche made its famous 'short squeeze' play.

http://radian.org/notebook/porsche

http://www.time.com/time/business/article/0,8599,1854760,00....