Porsche, the German manufacturer of luxury sports cars and SUVs, had been in advanced negotiation with the Qatar Investment Authority (QIA) about the Gulf state taking a stake in the company.
Porsche was struggling under the weight of huge debts accumulated in a daring bid to take over Europe's largest car maker, Volkswagen (VW). Porsche's management borrowed billions of euros to buy share options in VW in an audacious ploy to take control of its far larger fellow-German car maker; but it was a strategy that was badly timed. It backfired when the markets turned in the wake of the credit crunch.
Both Porsche and VW were in a parlous financial position, but large debts and expensively purchased options mean Porsche was in the biggest hole. The QIA mulled over taking a stake in Porsche which, in turn, would give Porsche the opportunity to purchase an additional and substantial, if not controlling, stake in VW.
In an indication of just how serious was its financial quandary, Porsche needed to borrow $972.5m from VW, in which it owns a 51% stake, in order to ward off potential bankruptcy. But it had also been looking to raise up to another $12bn in finance.
A 51% stake in any company is usually a controlling stake but, unfortunately for Porsche, VW has a complicated, protective ownership structure with the Lower Saxony government, where the company is headquartered, having a controversial golden 20% shareholding that effectively blocked any takeover without its agreement.
Porsche even held talks with VW that would have seen a merger between the two companies, but they collapsed due to what VW described as the lack of a constructive atmosphere and their frustration with Porsche's complex, opaque finances. Porsche had hoped earlier this year to fulfil its need for cash by holding a joint rights issue with VW, but that idea was rejected outright by VW. Porsche did not want to hold its own rights issue as that would have, perhaps fatally, diluted the stakes of the founding Piech and Porsche families.
If this corporate pas de deux sounds a touch incestuous, it would not be surprising--the two companies have long been virtually joined at the hip even if the relationship has been particularly fractious in recent years. Ferdinand Piech is in the extraordinary position of, as well as being the chief executive of VW, being a member of the extended family trust that controls 100% of the voting rights in Porsche and around 13% of its general stock....