German sports car maker Porsche will not seek to raise its Volkswagen stake to 75 percent, it said on Monday, noting talk of such a move "overlooks the realities in VW's shareholder structure".
"In view of the fact that the state of Lower Saxony as the second biggest shareholder of Volkswagen controls more than 20 percent of the shares, the probability of acquiring the requisite shares from the free float is extremely low," Porsche said in a statement.
The maker of 911 sports cars and Cayenne sport utility vehicles was reacting to a weekend report by Germany's Focus magazine that Porsche was eyeing a VW stake of 75 percent.
Porsche last week won the green light from its supervisory board to raise its voting stake in VW from 31 percent to an unspecified majority once it had cleared any anti-trust hurdles.
It has said it needs to prevent Volkswagen -- which supplies roughly 30 percent of the parts used in Porsche vehicles -- from falling into unfriendly hands now that Europe's highest court has struck down a German law capping individual investors' voting rights at Europe's biggest carmaker.
The German government is working on replacement legislation that would still preserve a strong say at VW for its labor force and Lower Saxony.
Building a majority stake in VW would ostensibly cost Porsche about 10 billion euros ($15.36 billion) at the current market price, but Porsche has secured cash-settlement options on VW shares that would reduce the takeover bill dramatically.
VW shares initially pared gains on the news, but then recovered to closed 1.6 percent higher.
Spanner in the Works
Analysts have long said gaining majority control of VW would make the most economic sense if Porsche could also get its hands on Volkswagen's cash flows through a so-called domination and profit transfer agreement that usually requires owning 75 percent in a company.
But Lower Saxony can throw a spanner in any such plans by keeping its strategic VW stake, which helps it protect 82,000 VW jobs in the state.
VW's articles of association let investors with a 20 percent stake block key strategic decisions, strengthening Lower Saxony's hand even in the absence of a new VW Law.
Were Porsche to up its stake to 75 percent, push through a domination agreement and then offer a cash buyout to minority investors as German law usually stipulates, it could cost Porsche in total a further 23 billion euros.
Beyond gaining access to the full profits of a subsidiary, parent companies often view domination agreements as key to coordinating business plans and improving knowledge transfer between units, so it could be well worth it to Porsche.
Money is no problem. Porsche has borrowed 10 billion euros now parked in risk-free assets, and shareholders have authorized it to raise its share capital currently worth a further 10 billion euros.
Still, some analysts question whether the Porsche and Piech families that own Porsche -- an extended clan that includes VW Chairman Ferdinand Piech -- agree that a full VW takeover makes sense.
"Porsche would also be fully exposed to all VW risks, which the Porsche family intends to avoid in our view," Credit Suisse analyst Arndt Ellinghorst wrote to clients last week.
Unless Porsche brokers a major deal that lets Lower Saxony safeguard its interests at Volkswagen, the state is hardly likely to accept a domination agreement that entitles it to a fixed annual payment.
In any event, it is unlikely that Porsche will control over 50 percent of VW by the time of the annual meeting in April since winning regulatory clearance could take several months.