VW stock bolstered by talk of full Porsche bid

Shares of Volkswagen extended gains yesterday on talk that Porsche could eventually mount a full takeover bid for Europe's biggest carmaker, in which it is already the biggest shareholder.

VW shares rose four per cent at one point, and by 0910 GMT were trading 2.7 per cent higher at €86.50, helped in part by a Goldman Sachs upgrade to "buy" from "neutral."

Goldman Sachs also raised its price target significantly to €110 from €77.

The DJ Stoxx European car sector index gained two per cent.

Volkswagen stock hit an eight-year high when Porsche announced it had raised its stake to 27.4 per cent, aimed to raise its holding as high as 29.9 per cent and planned to create authorized capital worth around eight billion euros as a possible acquisition currency.

"Clear interest in VW should set a floor on valuation, even in the event of VW brand CEO Dr Bernhard's departure, which has been widely discussed in the press," JP Morgan said, raising its VW price target to €85 from €65.

Porsche has said its stake aims to secure close ties with a strategic partner in case a law limiting voting rights in VW is overturned. It has ruled out so far surpassing the 30 per cent threshold that would make it launch a full bid.

But the market is abuzz with talk that Porsche, owned by the family of VW Chairman Ferdinand Piech, could at some stage decide to take full control of VW. Porsche's decision to increase its equity capital by half was the most interesting part of Porsche's earnings announcement on Wednesday, Sanford Bernstein analyst Stephen Cheetham wrote in a note to clients.  

"We believe this may presage a full bid by the company for Volkswagen, fulfilling Mr Piech's evident wish to control the company ahead of a likely expiry of the Volkswagen law limiting any one shareholder to 20 per cent of voting rights," he wrote.

"We believe this to be strongly negative for Porsche shareholders, due to material dilution and change in scope of the asset they own, but less negative for VW shareholders, since the stock price is likely to rise rapidly in anticipation of a bid," he added.

Credit Suisse acknowledged the possibility of a bid but said it continued to believe Porsche has no interest in crossing the 30 per cent threshold.

"In our view, this is more posturing rather than preparation for a full bid and we still believe a holding below 30 per cent satisfies Porsche's medium term requirements," it continued.

Meanwhile, shares of DaimlerChrysler rose more than three per cent yesterday amid market talk that Wolfgang Bernhard, the restructuring expert reported to be quitting Volkswagen, could return to DaimlerChrysler, dealers said.

"There are rumours in the market that Bernhard is moving to Daimler," one dealer said.