Volkswagen and Porsche

Coinciding with the announcement of its 18. 5% minority share (September 2005), Porsche (Sep announced that the scope of its engagement with VW would not, in any case, come to require issuance of a mandatory offer to the other shareholders: Fifteen months, that very thing happened! To accomplish this, Porsche did not buy VW shares directly: Instead, it (again) acted through options. This way, Porsche effectively “sneaked” its way to the 30% mark within one year. The initial 8. 5% share was increased to 21% plus, and in November 2006, the company exercised VW common stock options at around 4%, with holdings totaling more than 25%.

Two days later Porsche’s share increased to 27. 4%. VW Porsche case study – by Joachim Hacker Seite 14 Phase 3: Crossing the 30% hurdle According to the German Stock Corporation Act, when Porsche crossed the 30%-threshold, to the German Stock Corporation Act when Porsche crossed the 30% Porsche was bound by contract to submit a bid to the other shareholders for the remaining ordinary and preference shares. Porsche publically announced that it did not intend to acquire VW. Porsche limited bidding to the legally prescribed minimum price of 100. 92 euro per ordinary Porsche limited bidding to the legally prescribed minimum price of 100.

92 euro per ordinary share, and 65. 54 euro per preferred share. The acceptance period extended from April 30th to May 29th 2007. At the end of this period, an ordinary share listed at 111. 39 euro and a preferred share at 74. 54 euro. The pronounced discrepancy between the going rate and the actual market value (offer below market value) resulted in a 0. 06% acceptance rate. VW Porsche case study – by Joachim Hacker Seite 15 Phase 4: Approaching the 75% hurdle Development of VW common stock (monthly key rates) On October 28th 2008 short sellers reacted with panic buys when Porsche’s stated that it held 42.

6% VW common stock plus 31. 5% cash-settled call options in bonds; and as a result, drove prices up (taking into account Lower Saxony’s major share, the free float diminished to 5. 9%). VW Porsche case study – by Joachim Hacker Seite 16 Phase 4: Approaching the 75% hurdle Trading volumes of VW common stock, monthly key rates Shortly before Porsche’s entry, the trading volume of VW common stock rose sharply. Likely, in addition to investors, banks that had concluded option contracts with Porsche purchased VW securities in order to reduce risk, further driving up demand. VW Porsche case study – by Joachim Hacker

Seite 17 Phase 4: Approaching the 75% hurdle VW share structure as in 2009 (provided that Qatar Holding LLC would exercise all options held) (p The VW stock – intrinsic lack of diversification because the majority of the stock is in the VW di hands of three major shareholders. Moreover, the stock is “market-dependent,” because the three major shareholders don’t actively trade in the market; and have instead made long-term investments. ti th VW Porsche case study – by Joachim Hacker Seite 18 Phase 4: Approaching the 75% hurdle Trading volume of VW common stock, monthly key rates, Nov. 08 – Nov. 09

Decline in trade volume, ongoing since November 2008 of VW shares. The tradability of the 2008 VW Th stock has decreased. This puts the stock at risk of private shareholders, who favour shortterm investments. The risk remains that the stock will not immediately re-sell. The decreasing demand will lower the price further. th VW Porsche case study – by Joachim Hacker Seite 19 Phase 1–4 Summary: How and why did the VW share price increase? November 2006 Porsche raised its VW share to 27. 4%. The price of VW common stock was at 2006 Porsche raised its VW share to 27 The price of VW common stock was at 82.

25 euro, and had nearly doubled in a year. From October to November 2006, the trade volume increased by 206%. January – March 2007 The trading volume showed another enormous increase (251%) from January to March. By March, VW stock was at 112. 50 euro. After Porsche increased its share to above 30%, media reports that indicated an imminent acquisition of VW were published above 30%, media reports that indicated an imminent acquisition of VW were published. Accordingly, over the next months, share prices were driven even higher. October 2007 VW stock held at 197. 90 euro, corresponding with a 387% increase in three years.

In the following months, the rate slipped to 150 euro; possibly because of the ECJ’s dismissal of VW law. March 2008 Porsche published a press release, according to which the supervisory board agreed to a majority share in VW. Then, VW common stock increased again, this time exceeding the 200 euro mark in the months that followed. VW Porsche case study – by Joachim Hacker Seite 20 Phase 1–4 Summary: How and why did the VW share price increase? October 2008 The financial crisis reached the German market, VW stock was resistant, initially, 2008 Th fi VW and on October 28th 2008, worth more than 1,000 Euro.

Short sellers reacted with panic buys when Porsche’s stated that it held 42. 6% VW common stock plus 31. 5% cash-settled call options in bonds; and as a result, drove prices up. And taking into account Lower Saxony’s major share, diversified holdings diminished to 5. 9%. November 2008 Porsche triggered 5% of its call options based on cash settlement. The VW rate 2008 Porsche triggered 5% of its call options based on cash settlement The VW rate normalized, but the stock was still overvalued. January 2009 Porsche attained a 50. 76% majority share, and the rate of VW’s shares levelled off 2009 Porsche attained 50

majority share and the rate of VW shares levelled off above 200 Euro. By May 2009, it was finally clear that Porsche could not stem the takeover. August 2009 Qatar entered into VW, as its third major shareholder. 2009 Qatar entered into VW, as its third major shareholder. VW Porsche case study – by Joachim Hacker Seite 21 2. Question 1: What does Porsche need to clarify in order to Question 1: does Porsche need to clarify in order to successfully attack the big fish? Answers to Question 1: 1: Constant improvement in terms of profitability and liquidity of business operations 2:

2: The complete abolition of VW law complete abolition of VW law 3: Financial assistance from the banks in the form of credits VW Porsche case study – by Joachim Hacker Seite 22 2. Answer 1: Constant improvement in terms of profitability and Answer 1: Constant improvement in terms of profitability and liquidity of business operations? Porsche’s car sales decline (comparing the first half of 2007/2008 with the first half of 2008/2009) The economic crisis hit all global automotive companies. Also Porsche could sell less cars. In response to dwindling sales figures, Porsche had to curb its production. fi it

VW Porsche case study – by Joachim Hacker Seite 23 2. Answer 1: Constant improvement in terms of profitability and Answer 1: Constant improvement in terms of profitability and liquidity of business operations? Porsches proceeds from share stock option 1st half-year 2008/2009 Porsche succeeded in quadrupling its profit, due to the 6. 8 billion euro profit generated through VW option sharing th VW VW Porsche case study – by Joachim Hacker Seite 24 2. Answer 1: Constant improvement in terms of profitability and Answer 1: Constant improvement in terms of profitability and liquidity of business operations?

Despite the sales decline Porsche could increase its profitability. However: 1) Profitability: Profits from the cash-settled options depended upon an increasing VW share price. 2) Liquidity: Further, in addition to the sales slump, net liquidity decreased by nine billion euro, when Porsche rushed to purchase enough VW stock to increase its holding form 30% to 50%. As it turned out, Porsche was unable to fund the acquisition through its own means. The operating profitability and liquidity was not constant but declining VW Porsche case study – by Joachim Hacker Seite 25 2. Answer 2: Complete abolition of VW law?

Once the ECJ issued complaint regarding the alleged illegality of certain sections of VW law, Parliament, in November 2008, approved a new version thereof. Accordingly, special delegation rights in the VW Supervisory Board once reserved for representatives from Central and Lower Saxony (§ 4 paragraph 1 VW law) were removed. Further, each shareholder was immediately entitled to exercise his full voting rights, which were no longer restricted to 20%, as was stipulated by § 2 paragraph 1 of VW law. However, certain decisions made during general meetings still required approval by an 80% majority.