[Brucelee]

Porsche alert fuels controversy
By Daniel Schäfer in Frankfurt

Published: July 30 2009 03:33 | Last updated: July 30 2009 03:33

Porsche on Wednesday warned that it could suffer a pre-tax loss of up to €5bn ($7bn) in the financial year that ends this week, adding further fuel to the controversy over the €50m “golden parachute” paid to Wendelin Wiedeking, the sports car maker’s chief executive who was ousted last week.

The debt-ridden company said it was in “advanced talks” to sell a large package of options on Volkswagen shares. This transaction as well the full consolidation of VW on its balance sheet would trigger a “substantial” loss in the 12 months to the end of July 31, the company warned.


The consolidation of VW is necessary after Porsche lifted its stake in its rival to 50.76 per cent in January, which left it with net debt of more than €10bn.

The expected loss underscored how some of the large paper profits the sports car maker booked in recent years could quickly evaporate.

It will also reignite the debate over Mr Wiedeking’s pay-off, one of the highest ever in the history of corporate Germany.

“People often complain that hedge-fund managers have no downside risk,” Max Warburton, analyst at Bernstein Research said. “It is the same with Mr Wiedeking. He got paid while making money on accounting and got away before the losses were seen.”

The maker of the 911 sports car has often been compared with a hedge-fund, after it booked billions in paper profits with large bets on VW’s share price.

In the past financial year, Mr Wiedeking was paid a salary of almost €80m on the back of a €8.6bn profit that exceeded the sports car maker’s revenue. Only a fraction of these profits came from the sale of cars.


Mr Wiedeking was forced to leave last week at a showdown board meeting, when Porsche’s family owners agreed on a rescue package for the debt-saddled sports car maker. The families set aside a feud and agreed to recapitalise Porsche, dispose of its VW options and sell its sports car business to VW, ahead of a full merger of the two companies by 2011.


The group has amassed its high net debt load in an almost four years’ long, ill-fated attempt to acquire VW, Europe’s largest carmaker. The strategy triggered a family feud between Wolfgang Porsche, chairman of the carmaker and his cousin Ferdinand Piëch, chairman at VW and a big Porsche shareholder.

The planned sale of the VW stock options would free up some €1bn in cash held as collateral for those derivatives by banks, Porsche said. “This sum does not make much of a difference to a company that has more than €10bn net debt,” Mr Warbur