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The financial woes of Germany's Porsche are bigger than previously thought, media are reporting. The sports car maker is some 14 billion euros ($20 billion) in debt, about 5 billion more than Porsche had earlier said.
Porsche's bid to take over VW almost pushed them into insolvency
According to media reports, Porsche was on the brink of insolvency when the struggle between the sports car maker and Volkswagen finally came to a head.
Focus has reported that Porsche would have been insolvent within two weeks had VW not pushed through with its takeover ambitions. Ironically, the maker of iconic sports car like the 911 had initially wanted to gain control over Volkswagen – and it was the financial burden of that very takeover bid that pushed the sports car maker to the edge.
Porsche had always said its debt level was at around nine billion euros ($13 billion), yet on Saturday the newsmagazines Focus and Der Spiegel both reported that marathon talks between Porsche and VW revealed that in fact, Porsche has run up debts of as much as 14 billion euros.
VW and Porsche in takeover talks
VW is currently in negotiations with Porsche over the terms of the two-step takeover and details of Porsche's balance sheets are likely to determine the purchasing price for the luxury car maker.
Volkswagen plans to acquire 49.9 percent of Porsche this year and to take more than 50 percent in 2010. Porsche, however, is to stay an independent brand.
The final touches to the takeover are to be worked out in the coming months. Focus said VW finance experts are to comb through Porsche's balance sheets over the coming days and then determine the purchasing price for the luxury brand.
Soon, Porsche will be in VW's stable of brands
Volkswagen already controls a whole host of car brands ranging from Swedish heavy truck maker Scania to sports car manufacturers including Bugatti and Lamborghini which sit alongside the luxury Bentley and high-end Audi names.
Most VW sales, however, come from its bread-and-butter Golf and Polo models, together with Czech carmaker Skoda and Spain's Seat.
Porsche and VW employ almost 378,000, including 12,800 at Porsche, with almost half the total based in Germany.
VW law re-examination
The merger between VW and Porsche will mean that the so-called "Volkswagen law" would then also apply to Porsche. The controversial law grants the German state of Lower Saxony a blocking minority in VW, which is based in the city of Wolfsburg. The legislation dates back to the 1960s, and was designed to protect the automaker against hostile takeovers.
The law has long been under scrutiny from the EU, which sees it as protectionist and infringing on the free flow of capital. According to the Sueddeutsche Zeitung newspaper, the EU commission with jurisdiction over internal markets and services is currently debating whether to take the matter to the EU Court of Justice for a second time.
Editor: Kyle James