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VW to hoard cash ahead of Porsche deals, CFO says

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VW to hoard cash ahead of Porsche deals, CFO says

Automotive News Europe -- August 3, 2010 06:01 CET

MUNICH (Reuters) -- Volkswagen AG will keep adding to its more than $20 billion cash pile as it prepares for an acquisition spree that could help it overtake Toyota Motor Corp. as the world's No. 1 carmaker within eight years.

VW finance chief Hans Dieter Poetsch left little doubt he wants VW to continue generating more cash to provide enough flexibility to finance its ambitious Strategy 2018.

"I would feel uncomfortable if the automotive business didn't operate with at least 5 billion euros in net cash," the CFO said last Thursday after Volkswagen revealed it actually had 17.5 billion euros ($22.9 billion) on its books.

The greater its pile of cash, the more the market speculates that Volkswagen will soon launch a bid for the 70 percent of German truckmaker MAN it does not already own.

Bernstein analyst Max Warburton called the cash pile "a ridiculous level of liquidity" unless VW aimed to top up its underfunded pensions or pursue M&A plans. Analysts tried to extract information about VW's intentions for such a huge war chest, but Poetsch insisted the company needed it to finance its existing plans.

These include buying the Porsche AG sports car business and Austria's Porsche Holding, the largest independent dealership group in Europe -- together valued at 16 billion euros in equity and debt.

VW now has roughly enough cash to buy the rest of Porsche AG plus Porsche Holding and still have 5 billion euros left.

VW plans to subsume listed automotive holding company Porsche Automobile Holding SE next year once Porsche SE's ordinary and preferred shareholders have stumped up fresh equity of 2.5 billion euros each.

In order to tempt Porsche SE preferred investors to double up their exposure, Volkswagen may be forced to offer a stock swap at a favorable price for holdings in VW, which Poetsch stated clearly would only be its own non-voting stock class.

"We didn't take any decision on when there is the right time to introduce a merger ratio, but talking purely systematically, it would certainly be supportive if we were able to introduce a merger ratio once we start marketing the capital increase at Porsche SE," Poetsch explained.

Poetsch told a conference call Volkswagen had no concrete plans to make use of authorization to issue as many as 70 million new preferred shares through another rights issue, a convertible bond or a combination of the two.

In March it collected 4.1 billion euros in a cash call to compensate spending 3.9 billion in December to buy 49.9 percent of Porsche AG. VW also invested 1.7 billion to buy nearly 20 percent of Japan's Suzuki in January.

Porsche SE nearly bankrupted itself last year trying to gain full control over Volkswagen before the Porsche and Piech clans that own the indebted holding company agreed to sack Porsche management and accept a reverse takeover by its cash-rich prey.

Read more: http://www.autonews.com/article/20100803/COPY/308049999/1193#ixzz0vdpW3RVz

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