VW-Porsche Deal Not Likely To Happen

WEISSACH, Germany (AP) -- A power struggle among members of two of Germany's oldest industrial families, the Porsches and the Piechs, is threatening to derail a deal to integrate the already intertwined Volkswagen AG and Porsche SE -- suddenly deep in debt.

VW's chairman Ferdinand Piech failed to turn up Monday at a meeting of Porsche's supervisory board Monday, which functions much like a U.S. board of directors. The Piechs and Porsches are both stakeholders in Porsche.

"It's an amazing situation and it will continue to be amazing as long as Piech is around," said Ferdinand Dudenhoffer, a professor of automotive economics at the University of Duisburg-Essen who worked with Porsche's marketing department in the 1980s.

The meeting was to address the integration plan, agreed to earlier this month by both sides, that ran aground over the weekend when VW announced it was putting negotiations on ice pending "clarification" from Porsche. The luxury sports car maker insisted talks were still on track and that only a work group meeting between the two companies scheduled for Monday had been canceled.

At the heart of the dispute is some euro9 billion ($12.2 billion) in net debt that Porsche -- at the time Germany's most successful car maker -- racked up in its attempt to take over the much larger VW last year. Porsche holds a 51 percent stake in Volkswagen and had planned to take a 75 percent stake before the global economic recession hit.

Piech, part of the Porsche shareholding family and grandson of Ferdinand Porsche who founded the company that bears his name, told reporters last week the debts meant that the sports car maker had "its own financial problems to solve" before integration talks could proceed.

Furthermore, VW also accused Porsche of withholding information regarding the true expanse of its debts and what it expects to see happen if the two companies merge, amid rumors that Porsche is seeking some euro4 to euro5 million ($5.4 to $6.7 million) in fresh capital.

Porsche reacted angrily, fearing the remarks could damage the value of the company.

Dudenhoffer said Piech has a history of clashing with the rest of the Porsche family and has had a record of "a strong personality" in past management posts with Volkswagen and Audi.

Nor does he like Wendelin Wiedeking very much, the chief executive of Porsche, according to Dudenhoffer. Those two have clashed on past issues.

"Piech doesn't like the family at all and sees his position is in danger," Dudenhoffer said, noting that Piech realizes if a new investor comes in -- including Porsche as part of the integration -- his position at Volkswagen will be weakened.

Dudenhoffer said he expects a new investor to enter VW, perhaps from the Middle East, if things don't work out with Porsche. In either case, Volkswagen will probably then vote in a new supervisory board, without Piech at the helm.

Meanwhile, several thousand Porsche workers walked off their jobs Monday to protest the proposed fusion of the two companies amid fears the storied brand could lose its independence and elite status.

Porsche works council chief Uwe Hueck demanded that independence not be compromised, rallying some 6,500 workers at Porsche's development center here around the message of: "Porsche stays Porsche. VW stays VW."

Hueck later said both sides of the family had assured him that whatever happens, Porsche could stand alone.

In a letter to employees from VW Chief Executive Martin Winterkorn obtained by the Associated Press, the company insisted any cooperation required "careful planning."

"For any association between Volkswagen and Porsche, we have to systematically analyze the position of Porsche in order to get a clear picture of the real situation," the letter said.

"We need full transparency of the current situation. It is in the interest of all involved, our workers, shareholders and customers, that we do not risk Volkswagen's financial stability and sovereignty."

"For that reason, we will not be pushed to rushed negotiations by anyone ... we need a constructive atmosphere for the necessary constructive talks. We are not under pressure. All the options and circumstances have to be thoroughly investigated, in order to be able to decide on the basis of facts," Winterkorn said.

Shares of Porsche closed nearly flat at euro41.21, while shares of VW ended up 2.7 percent at euro225.30 in Frankfurt.

Associated Press Writer Melissa Eddy in Berlin and AP Business Writer George Frey in Frankfurt contributed to this report.

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