Porsche Announces Sale of Options on VW Shares

As a result of last week's announcement that German manufacturers Porsche and Volkswagen have reached a preliminary merger agreement, the former has today issued a press release stating it has begun preparations for "the sale of the cash settled options with respect to Volkswagen shares to one or several investors." Qatar Holding was confirmed as an investor in Porsche.

"The preparation for the sale of the options on Volkswagen shares leads to a devaluation resulting in a substantial book capital loss. Nevertheless Porsche improves its liquidity situation through the sale of the options structure as it would lead to an inflow of cash in a magnitude of more than one billion Euro, currently serving as cash collateral for the options structure," the manufacturer said in the release.

Porsche has also tried to explain how it got in this uncomfortable position in January 2009. The manufacturer explains that as a result of the increase of the stake in VW to 50.76 percent, it was forced into "fully consolidate Volkswagen."

"This triggered a so called Purchase Price Allocation (PPA) under which all assets and liabilities of the part group Volkswagen had to be valued and compared with the price paid for the shares to get to the company’s valuation. This results in a substantial negative impact."

Porsche emphasizes that the devaluation of the options and the impact of the PPA are only accounting related and they do not "affect the valuation of the 50.76 percent stake in common shares in Volkswagen AG on Porsche’s balance sheet."

Further developments on the matter are expected in the following days, as so far little is known about the terms and conditions behind the Volkswagen-Porsche deal.