No-moat Volkswagen (VWAGY) (VWAPY) said the price range for the Porsche AG preferred IPO would be EUR 76.50-EUR 82.50 ($76.73-$82.75). At the midpoint, this values the equity stake of Porsche AG being sold in an initial public offering and to Porsche Automobil Holding SE, the investment firm of founding families Porsche and Piech, at EUR 18.8 billion ($18.9 billion), just below the high end of our estimated EUR 14 billion-EUR 19 billion ($14 billion-$19 billion) range (see our Volkswagen Sept. 6 note). Volkswagen split the capital of Porsche into 50% ordinary shares and 50% preferred shares. The equity stake sale includes Porsche Automobil Holding purchasing 25% of the ordinary shares at a 7.5% premium to the preferred IPO price. The company plans to begin trading preferred shares on Sept. 29. Based on the figures in Volkswagen’s pricing announcement, we estimate the total number of Porsche equity shares at 911 million, a nod to the model most associated with the Porsche brand, the 911. Volkswagen says that it will hold a December shareholder meeting to vote on a special dividend of 49% of the gross proceeds.
We reiterate that we like Volkswagen’s plan to reward shareholders with a special dividend. In addition, we like that the remainder of the proceeds will probably be used in Volkswagen’s transition to electric vehicles with batteries; in which the firm plans to invest more than EUR 50 billion ($50.2 billion) during the next five years. However, the timing of the IPO and current management structure raises concerns. Automotive sector market valuations have been hit by the possibility of a recession in major markets, chip shortages, war in Ukraine, higher raw material costs, higher prices paid at the pump, and other inflationary cost pressures. Volkswagen recently named Oliver Blume as CEO. However, Blume is also CEO of Porsche. This raises concerns about a conflict of interest. Even so, Volkswagen ordinary and preferred shares currently trade at 40% and 55% discounts to our EUR 326 ($33) fair value estimate, respectively.