Editorial: Piech Vs. Wiedeking-Leaks, Letters, Lies and the Triple Witching Hour

Assume for a horrifying second that you are the chairman of the board of one of the world’s largest auto companies. You also own large chunks of a smaller auto maker. Your executive assistant brings in a letter from one of the top managers of that smaller automaker. The letter says you broke the law, you hurt the company, and he may hold you personally liable for the damage. To the tune of, oh, several billion. Euros. What would you do? Right. Send down security with a moving box and have the guy escorted to the factory gates. Ferdinand Piech, chairman of the board of Volkswagen, supervisory board member of Porsche, and one of the largest owners of Porsche received such a letter from Porsche CEO Wendelin Wiedeking. The letter arrived a month ago. Wiedeking still has a job. But the letter has been leaked to the press. The day before Wiedeking’s day of reckoning.

The Süddeutsche Zeitung is in possession of a personal letter from Wiedeking to Piech, sent on May 13, 2009. Your guess is as good as ours who revealed the reading matter. A day before the epistle was express-mailed, Piech had publicly called Wiedeking a loser. A few days later, Piech had offered Wiedeking a job after Volkswagen had done a reverse takeover and gobbled up Porsche: The job came with conditions. “He would have to step several rungs down the ladder. He would have to be demure,” said Piech. In the olden days, this would have been cause for a duel with pistols. It turned into dueling letters.

Wiedeking is still in charge of Porsche and is still trying to find the money to finance and finalize the takeover of Volkswagen by Porsche. “Apparently, Piech did not get support for firing Wiedeking,” muses Der Spiegel after reading the Süddeutsche. The support for an execution of Wiedeking at Porsche must come from the other factions of the Porsche/Piech families ruling Porsche. So instead of firing Wiedeking, Piech fired a letter back and denied all allegations.

The obviously premeditated leak is yet another chapter in the power struggle for the control of Volkswagen and Porsche. Porsche is looking at a debt of €9 billion and cannot complete the takeover of VW. They applied for a €1.75 billion government-backed loan, but the application has not been decided. The Sheikh of Quatar is ready to buy 25 percent of Porsche, but he wants to have a say in the company also.

“Even a Qatari investment, or a loan from the government, cannot revitalize the project for taking full control of VW,” says the New York Times today, citing analysts. “This does not create a chance for Porsche to resume the takeover of VW,” said Daniel Schwarz, an automotive analyst at Commerzbank in Frankfurt. “That scenario does not exist anymore.”

Today, Friday, is a day of double reckoning for Porsche.

Today, Porsche presents the numbers for the first ten months of the 2008/2009 fiscal year. According to Reuters, “reported pretax profit at its core sports car business declined on the back of a sharp drop in vehicle sales and revenue in the first nine months of its fiscal year. Consolidated profit before tax would significantly rise, however, thanks to a considerable boost in earnings from cash-settled stock options that benefited from a high underlying share price in Volkswagen ordinaries.” It may be the last time.

Today, Friday, June 19, is triple witching hour in Germany. Most options Porsche holds on Volkswagen stock expire. Porsche either has to exercise them, which costs money, or they go poof and result in a big loss. Reuters predicts a “potentially volatile session for Volkswagen shares on Friday due to the expiry of options, index options and futures on the Eurex derivatives exchange.”

The leaked letter exchange was strategically timed.