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28 February 2022

Market Round-Up

Volkswagen (VW) shares are rising after it announced that it is in advanced discussions with its controlling shareholder Porsche SE (owned by the Porsche-Piëch family) about an initial public offering (IPO) of its sports car maker brand Porsche AG. Under the current plan, VW would seek to raise at least €20bn through floating about a quarter of Porsche AG in which it expects the listing to be valued between €80bn and €90bn. Around half of these shares would have voting rights.

The Porsche-Piëch family began taking a stake in the VW group in 2005, after the German parliament introduced laws to prevent hostile takeovers and maintain control over the automotive industry. These laws essentially stated that any shareholder with more than 20% of ownership could veto any proposed resolution: the government had a 20.1% stake and therefore kept partial control of the newly privately-owned company. By 2008, Porsche SE announced that it had acquired 42.6% of VW stock with options for another 31.5%. This was an attempted takeover, however, the family fell short of their 75% shares target and racked up more than €10bn in debt. Over a series of takeovers, VW became the owners of Porsche SE, creating the brand branch of Porsche AG.

Porsche SE now own 53.3% of VW shares, but the family has said that they might buy ordinary shares in Porsche AG as part of the IPO. This would mean that some sense of ownership over the Porsche brand is restored to the family. The decision for a potential IPO has come after VW has faced increasing pressure to revive its share price that has lagged Tesla’s over the past year, while also generating cash to fund its move to producing electric vehicles. Shares in Porsche SE were up 9% after the announcement. VW has already pledged to spending €52bn on emissions-free models, but the high cost of battery factories and other necessary materials will require further cash funding. If the IPO goes ahead Porsche is expected to receive a market valuation of as much as €200bn, far greater than VW’s current market capitalisation of €110bn.

This transition to electrification is all part of the EU’s and UK’s aim to achieve net zero greenhouse gas emissions by the year 2050, in which it is more than just the automotive industry which is striving to make a change. In the UK this week, the National Portrait Gallery has announced that it will be terminating its more than 30-year partnership with BP after coming under mounting pressure from climate activists to look for funding elsewhere. Removing oil company support for art and cultural institutions has been a significant focus for protesters in recent years as climate change has increasingly become a popular topic of the political agenda.

Activist organisations such as the Art Not Oil coalition has been urging the National Portrait Gallery and other cultural institutions – namely the British Museum, the Royal Shakespeare Company and the Royal Opera House – to end their £7.5m worth of sponsorship deals with BP, as they are due to expire this year. The Royal Shakespeare Company was the first to bend to public pressure when it ended its contract in 2019, however, the British Museum is still yet to follow suit. With government cuts to arts funding, it’s believed that the public will lose out as its exquisite exhibitions will struggle to stay open unless they are supported by various corporations. While the other three cultural institutions have expressed gratitude to BP for its long-term support, they have agreed that it is not the way forward if climate change is to be taken seriously. There have been an increasing number of protests at the British Museum in an attempt to coerce the institution to adopt the same view.

Please note that this communication is for information only and does not constitute a recommendation to buy or sell the shares of the investments mentioned. The value of investments and any income derived from them may go down as well as up and you could get back less than you invested.
Market Round-Up
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