VW calls off merger talks with Porsche over big debt

Volkswagen, Europe's largest automaker, has called off talks with Porsche about a combination less than two weeks after the sports-car manufacturer's controlling families agreed to pursue a merger.

"There is currently no atmosphere for constructive talks," Christine Ritz, a spokeswoman at Volkswagen, said yesterday.

In a statement, Porsche said that while a meeting scheduled for yesterday had been cancelled, negotiations will resume. It didn't give details.

The Porsche and Piech families, which together control half of Porsche, agreed on May 6 to create an "integrated" carmaker that would put Porsche alongside VW brands, including Skoda and Audi.

Within a week, VW Supervisory Board chairman Ferdinand Piech said that Stuttgart, Germany-based Porsche must first trim its €9 billion in net debt before a merger, and that chief executive Wendelin Wiedeking and chief financial officer Holger Haerter were partly responsible.

"War has erupted again between Volkswagen and Porsche," said Ferdinand Dudenhoeffer, director of the Centre for Automotive Research at the University of Duisburg-Essen.

Dudenhoeffer was head of marketing strategy and research at Porsche from 1987 to 1990.

"Piech is behind that."

Porsche owns about 51 per cent of Wolfsburg, Germany-based Volkswagen, whose automotive division had €10.7 billion in net cash as of March 31.

The maker of the 911 sportscar had been accumulating VW shares since 2005 to protect ties to its largest supplier.

Porsche Supervisory Board chairman Wolfgang Porsche was struggling to raise financing to boost the stake to 75 per cent and had been at loggerheads with Piech about how to unite the carmakers.

The May 6 agreement between the families effectively put on hold Porsche's plan to further bolster its stake by acquiring VW shares.

The Porsche family is upset over Piech's remarks and is concerned that they may hurt the value of the carmaker, magazine Der Spiegel said on its website.

When asked whether VW would pay €11 billion for Porsche AG, the operating unit of Porsche SE, Piech said that amount is "definitely a few billion too high", according to the magazine.

Porsche workers will hold their first-ever strike today to protest against the merger plan, Focus magazine reported. On May 7, a day after the initial pact, Porsche shares fell the most in at least 13 years on the Frankfurt exchange.

The stock has fallen 21 per cent this year, cutting Porsche's market value to €7.2 billion. VW has declined 12 per cent, valuing it at €69.6 billion.

"It's completely open when talks can continue," VW's Ritz said. "We are under no time pressure at all."

Porsche spokesman Albrecht Bamler said the situation may become clearer tomorrow.

The 72-year-old Piech is a grandson of Ferdinand Porsche, who founded the sportscar manufacturer and was Volkswagen's first leader when the carmaker was set up under Adolf Hitler's Nazi regime in the 1930s.

In addition to leading the supervisory board at Volkswagen, where he was chief executive for nine years until becoming chairman in 2002, Piech is a member of Porsche's board.

Any agreement between Porsche and VW will require approval by Volkswagen's home state of Lower Saxony, which has a right to veto decisions through its 20 per cent stake in VW.

- BLOOMBERG