Porsche creates management dilemma for investors considering IPO
Porsche's leadership structure and the limited impact for stock market investors after its IPO are prompting some fund managers - especially those focused on governance issues - to think twice about whether to invest in the listing.
Volkswagen (ETR:VOWG_p) Porsche AG announced it will IPO its sports car brand this month or early next month. The deal, which could be worth as much as 70-80 billion euros ($70-80 billion), could be Germany's biggest IPO since 1999 and Europe's biggest.
Volkswagen's supervisory board will meet on Sunday evening and then announce details on the price range, valuation and approved underlying investors for Porsche AG, sources told Reuters on Thursday.
While the luxury car brand scores well with investors on environmental issues, with more than 80% of newly sold cars to be fully electric by 2030, up from 13.6% in 2020, some are concerned about its management.
Oliver Blume, who took the helm at Volkswagen this month, will also remain CEO of Porsche, raising potential conflicts of interest.
Another problem is that only a relatively small stake of 12.5% of Porsche's total capital will be offered to outside investors.
Ben Ritchie, head of European equities at investment firm abrdn, said Porsche is "definitely something we will look at, but we need to go and think really hard about governance."
"It's not great but is it manageable?" he added.
Scandals such as Dieselgate, in which Volkswagen admitted cheating on US diesel engine tests in 2015, remind investors that ESG - environmental, social and governance - issues are not just about the environment, but also about the way companies are run.
In an interview with Reuters this month, Blume downplayed concerns about his dual role, saying only some investors had raised questions about the structure.
He described "great interest" from investors in the IPO.
Georg Kell, chairman of Volkswagen's independent sustainability council, defended the decision for Blume to be CEO of both Volkswagen and Porsche.
"Keeping Blume in a dual function is a win. Blume will bring Porsche's good cultural experience to the Volkswagen Group as a whole."
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Estimates of Porsche's value vary widely. HSBC analysts this week put the price tag at €44.5-56.9 billion, while a source close to the list said it was more likely to be €70-80 billion.
Ferrari (NYSE:RACE), one of Porsche's listed rivals, has a market capitalization of €36 billion, while Mercedes Benz is valued at just under €62 billion.
"As a result of the capital and management structures, there is the potential for conflicts of interest in management," said Richard Hilgert, senior equity analyst at Morningstar.
"Some investors' ownership of Porsche AG may be constrained by ESG guidelines," he added, but said the offering could be attractive to investors less focused on such issues.
Chi Chan, portfolio manager for European equities at Federated Hermes (NYSE:FHI), highlighted Blume's dual CEO role as a problem in written comments to Reuters and echoed the concerns of Volkswagen investors Union Investment and DWS.
"The best governance practice is for the board to have only one director position to keep it focused and avoid conflicts of interest," Chan said.
Chan also pointed to the low proportion of independent directors in the company, which will be heavily influenced by Volkswagen and its main shareholder Porsche SE.
"Although we are trying to engage with the companies to improve their governance... It's hard to see Porsche SE/VW/Porsche AG adopting any of these best practice moves (possibly separate CEOs over time), so investors need to be mindful of these when deciding how much they affect the attractiveness of the shares for them," Chan said.
Gilles Guibout, head of European equity strategies at AXA Investment Managers in Paris, said he was concerned that only non-voting preference shares would be issued.
"This means minority shareholders will have no rights," he said.
Andrea Scauri, senior portfolio manager at Volkswagen investor Lemanik Asset Management in Milan, also pointed to the low proportion of shares on offer as a potential deterrent.
"There will be so few shares on offer, I hardly think they are going to give shares to me."
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