Germany's heavily indebted luxury high performance automotive manufacturer Porsche has rebuffed the proposed purchase of 49 percent in its sports car business as part of a merger offered by Wolfsburg, Germany-based automobile manufacturing group Volkswagen (VW), Europe's largest and the world's third largest car maker, saying that selling a unit of the company would incur a financial penalty that would render the deal impractical.
Commenting on the company's reaction to VW's offer, Porsche spokesperson Frank Gaube said, "It's not that we're rejecting the offer. It's that the offer is unfeasible."
VW has called for Porsche to sell it a 49 percent interest in its sports car business for as much as €4 billion, as a first step toward a merger.
After a series of intense meetings between Wolfgang Porsche and Ferdinand Piech, the patriarchs of the families that control the two iconic German companies, Porsche announced in May 2009 that VW and Porsche had entered weeks of intense talks to thrash out the final structure of a merger that would add Porsche as a tenth brand to VW's stable, which already includes Audi, Bentley and Skoda, as well as the VW brand.
Relations between the two carmakers have deteriorated in recent weeks as they disagree on how to get Porsche out of the financial difficulties it has found itself in since buying a majority of VW's shares.
Porsche has always had a close relationship with VW. In late 2005, Porsche took an 18.65 percent stake in VW, preventing a takeover of VW, which was rumored at the time. In March, 2007, Porsche took its holding of VW shares to 30.9 percent, triggering a takeover bid under German law. In mid-September 2008, Porsche increased its shares by another 4.9 percent, in effect taking control of the company, with more than 35 percent of the voting rights. As of January 2009, Porsche's holding in VW was raised to 50.8 percent, and Porsche announced its intent to raise its stake in VW to 75 percent before the end of 2009, at that level they could bring VW's cash onto Porsche's books.
Porsche currently owns 50.8 percent of shares in VW.
Meanwhile, Qatar's sovereign wealth fund Qatar Investment Authority (QIA) has made a formal offer to buy options from Porsche that give it a right to about 20 percent of VW shares. The offer, which Porsche is hoping to use to reduce its €9 billion debt, was confirmed by Porsche. According to analysts, QIA appears to favor the option of buying some of Porsche's holding in VW, but only once Porsche and VW have reached agreement on their situation.
However, no timeframe for any possible deal has been announced, and QIA is reported to be keen to wait for any merger between Porsche and VW to go ahead.