Volkswagen shares surge on news of Porsche’s intent to increase stake

In a year when stocks of automakers have been declining rapidly, Volkswagen AG has bucked the trend, with its shares soaring by as much as 81 per cent in a single day after sports-car maker Porsche SE announced plans to increase its holding to 75 per cent next year.

Shares of Volkswagen, the biggest car maker in Europe, rose as high as €414.50, or $522.10, before settling back to €360.31, still a 70 per cent gain, in early afternoon trading in Frankfurt. Investors were not as pleased with Porsche, pushing its shares 13.6 per cent lower to €39.77.

Porsche Automobil Holding was already Volkswagen's biggest shareholder with a 35-per cent stake and had previously aimed to raise it to 50 per cent this year. But over the weekend, Porsche announced it had raised its equity stake to 42.6 per cent and had options to buy another 31.5 per cent. The move leave it just a sliver short of the 75 per cent it needs to record Volkswagen's revenue, assets and profit on its own books.

"The goal remains, as long as the financial conditions are right, to increase (the stake) to 75 per cent in 2009 and clear the way for a controlling stake," Stuttgart-based Porsche said. It will pay market price for the Volkswagen shares but get the difference between the market price and the underlying strike price, which Porsche didn't disclose.

Porsche said it was acting in part because Volkswagen is so aggressively shorted, giving those on the other side of the trade the opportunity to cover their positions "without rush and without greater risk."

Porsche has slowly been increasing its stake in Volkswagen, which enjoys a special status in Germany under a law that allows the state of Lower Saxony, where Volkswagen is based, a blocking minority right although it holds a stake of just over 20 per cent. The European Union has sought to overturn that law, which effectively protects the automaker from being taken over.

Volkswagen 's unions also are upset at the prospect of Porsche ownership, calling the prospect a "catastrophe" for its 360,000 workers. But the two families that control Porsche, the Piech and the Porsche families, over the weekend resolved their differences surrounding Volkswagen. Porsche first bought up Volkswagen shares in 2005 as part of a move to guarantee cooperation between the firms.