Porsche makes robust trading debut in landmark IPO

Porsche gained during its robust trading debut after parent Volkswagen Group set the final listing price for the sports-car maker at the upper limit in a bid to defy deep market upheaval.

The sports-car maker rose 1.8 percent to $81 in Frankfurt on the open, before slipping back to its offer price of $79.93 apiece, the top end of VW Groups initial range for the shares that valued the company at $73 billion.

The listing, reaping $9.1 billion in proceeds for VW Group, is Europe’s largest initial public offering in a decade and contends with some of the most challenging market conditions in years.

“Today, a big dream comes true for Porsche,” VW Group CEO Oliver Blume said in a statement. “Our increased degree of autonomy puts us in a very good position to implement our ambitious goals in coming years.”

The listing of the 911 maker is a bold move into public markets, which have been largely shut to IPOs for most of the year, with companies shying away from seeking new listings because of the European energy crisis, rising interest rates and record inflation.

Following the trading start, against a 1.9 percent drop in Germany’s leading DAX Index, the preferred shares of VW declined as much as 6.2 percent while Porsche Automobil Holding SE, the investment company of the Porsche-Piech family, slumped as much as 9.2 percent.

The sale will help VW Group raise funds for its electrification push, while investors get a slice of an emotional brand akin to Ferrari, which also managed a successful separation from parent Fiat in 2015.

“If you can pull off an IPO in such a difficult market, it shows the attractiveness of the business,” Jefferies analyst Philippe Houchois said. “Porsche is a mature, well-known business that doesn’t need to raise capital. Putting it on the market as a fully formed business –- being able to pull that off is quite impressive.”

The share price puts Porsche at a valuation that is not far from VW Group’s total market capitalization — a business that comprises Audi, Skoda, Seat, and the VW brand, among others. Yet for all its aggressive marketing, the listing has also garnered negative attention for its complex structure.

VW Group divided Porsche’s share capital into equal parts voting and non-voting shares, with the German carmaker retaining 75 percent ownership.

Some 12.5 percent of total share capital –- only non-voting shares –- is being publicly listed, with a large portion going to four cornerstone investors. Qatar Investment Authority, Norway’s sovereign wealth fund, T. Rowe Price and ADQ have together committed to take up as much as $3.5 billion of the IPO.

The other 12.5 percent of total shares up for grabs is going directly to VW Group’s largest shareholders –- the billionaire Porsche and Piech family –- via their investment company Porsche SE. The family already owns a 53 percent majority of VW’s voting shares, and under the IPO terms, they will also get 25 percent plus 1 share of Porsche AG’s voting stock, paying a small premium to preferred shares for a total of $9.7 billion.

Restoring control

Porsche SE will mostly finance the acquisition with debt capital of $7.6 billion, buying shares in two tranches starting next month with the second purchase expected in January, following a special dividend payout by VW Group.

Up until 2009, the family owned half of Porsche and all voting rights, but they were forced to sell the sports-car business to VW after their attempt to take over German carmaker went awry. The IPO restores family control over an asset that has been long out of reach: They get a blocking minority on the sports-car maker’s supervisory board, and their status as VW anchor shareholder bolsters that control.

Porsche is targeting revenue of as much as $37 billion this year and return on sales of as much as 18 percent, up two percentage points from last year, the company said in July. Returns are to climb above 20 percent in the long term.

The company is still best known for its 911 model, though Porsche has expanded its lineup significantly in the past decade by adding popular sports-utility vehicles like the smaller Macan, as well as the four-door Panamera and the battery-powered Taycan.

Besides the byzantine ownership structure, governance is another issue for some investors. Porsche CEO Blume was recently elevated to CEO of VW Group, while retaining his post at the unit.

According to an analysis from Bernstein, Porsche’s market capitalization should sit at $77 billion – just below luxury companies but at the higher end of carmakers.

“Compared to the luxury companies, Porsche still exhibits higher volatility in earnings growth and margin profile,” wrote European autos analyst Daniel Roeska. “Porsche has only grown volumes significantly by adding new formats, and that does not seem likely in the upcoming years.”