Uncertainty over Porsche's financial health stalls VW- Porsche merger talks

19 May 2009

German carmaker Volkswagen has warned sports car maker Porsche on Monday that it would have to do a better job of explaining its finances to ensure talks on the merger could proceed. Analysts see this as a sign of the talks being in trouble.

In a veiled reference to Porsche's troubled finances, Volkswagen chief executive, Martin Winterkorn said in a letter to employees that 'absolute transparency' was required to systematically analyse the starting point to combine Volkwagen and Porshe. He added that it was in the interests of all concerned to ensure that there was no real threat to Volkswagen's financial stability and autonomy.

On Sunday, Volkswagen canceled the working group responsible for hammering out the details of the merger saying the atmosphere was not conducive for the process.

On Monday, the Volkswagen chairman, Ferdinand K. Piëch, unexpectedly skipped a meeting of the Porsche supervisory board, of which he is a member. This was played down by a spokesman who said that the Piech remained in contact with the members of the Porsche family. Wolfgang Porsche, Piech's cousin heads the Porsche board.

According to VW spokesman Michael Brendel it was still uncertain when the talks would resume.

Analysts point out that Porsche is more keen on finalising the deal given the sports car maker with a value of about 7.2 billion euros, or $9.7 billion reported a debt of 9 billion euros on its way to acquiring 51 per cent of Volkswagen. Last year, the company used so called cash-settled options contracts to gain voting rights to an additional 20 per cent or more.