Porsche puts finishing touches on capital hike

FRANKFURT Wed Feb 9, 2011 7:53am EST

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FRANKFURT (Reuters) - Porsche (PSHG_p.DE) is about to hit the road with a 5 billion euro ($6.8 billion) capital increase, paving the way for a planned merger with Volkswagen (VOWG_p.DE), two people familiar with the matter said.

Bankers at Deutsche Bank (DBKGn.DE) and Morgan Stanley (MS.N) have finished preparations for a capital hike with Porsche's owners -- members of the Porsche and Piech families -- one person familiar with the auto maker's thinking said.

The next step will be to test the market's appetite for buying 2.5 billion euros worth of non-voting preferred shares of Porsche, to match a 2.5 billion euro contribution of ordinary voting shares from the Porsche and Piech families and Qatar.

Bankers have struggled to find a convincing pitch for the increase given the reluctance by the Porsche and Piech families to surrender voting rights in Porsche's parent company, and continued uncertainty over a hedge fund lawsuit.

Bankers have however been encouraged by a recent U.S. ruling against hedge funds and a buoyant German stock market where capital increases -- most notably Deutsche Bank's 10 billion euro offering last year -- have been easily absorbed.

The market for initial public offerings (IPO) shows a similar development: Bicycle maker Derby Cycle DCTG.DE and software group RIB (RSTAG.DE) celebrated their market debut earlier this month in Frankfurt and could be followed by Williams Grand Prix and shipping group Hapag-Lloyd HPLG.UL later in the year.

"Markets are on fire," one of the bankers, who declined to be named, said.

Another person familiar with the matter said that Qatar may scoop up preferred shares that find no buyer.

The STOXX 600 auto index .SXAP has risen 53 percent since the beginning of 2010, mirroring a rebound in the global auto industry, and is up six percent year-to-date.

Late last month JP Morgan hiked Porsche's price target to 88 euros from 40 euros, and upped Volkswagen's target price to 170 euros from 83 euros after upgrading the stock to "overweight" from "neutral."

The Porsche capital increase is on track to come "before Easter (April 24)," one banker, who is familiar with Porsche's cap hike plans, said. But other sources cautioned it may take a couple more weeks before the deal goes through.

The Porsche and Piech families -- holding 90 percent of the voting rights -- will buy around 2.25 billion euros worth of ordinary shares, with 10-percent shareholder Qatar buying an additional 250 million euro stake.

Porsche aims to merge with Volkswagen, Europe's largest car maker, by the end of this year.

But legal and taxation issues have cast doubts on the merger timetable.

Porsche was forced to seek a merger after an attempt to take over Volkswagen collapsed amid a pile of debt.

To help save Porsche, the owners -- the Porsche and Piech families -- agreed to sell Porsche Holding Salzburg, Europe's largest independent auto dealer, as a way to raise money for the Porsche capital increase.

Porsche also agreed to sell its sports car business Porsche AG, to VW.

The threat of legal action, long a factor preventing a combination of the two auto companies, has not disappeared but diminished after a U.S. judge dismissed a lawsuit seeking more than $2 billion in damages.

Porsche declined to comment, Qatar was not immediately available for comment.

($1=.7327 Euro)

(Reporting by Edward Taylor, Arno Schuetze, Philipp Halstrick, Hendrik Sackmann, Christiaan Hetzner, Jan Schwartz; Editing by Hans Peters)

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