Positive Reactions to Porsche-VW Deal

Reacting to the announcement that luxury sports carmaker Porsche planned to buy a stake of around 20 percent in Europe's biggest car maker Volkswagen, German Economics Minister Wolfgang Clement welcomed the deal as "good for the two companies and the German economy."

"I am happy that Porsche, an investor which thinks long-term, is taking a stake in Volkswagen," Clement said.

Christian Wulff, premier of the German state of Lower Saxony, which holds an 18.2-percent stake in VW's voting shares, welcomed the announcement as "a great opportunity for Germany as a car-making country in terms of quality, image and technical innovation.

"We're in the midst of positive talks," Wulff said. "The state will stick by its commitment to VW."

Porsche's move is aimed at protecting VW from a potential hostile takeover, made more likely with the anticipated lifting of the so-called Volkswagen law, which shields the car maker from hostile takeovers. The European Court of Justice is expected to rule on this issue in the spring of 2007.

Ups and downs on the stock market

Volkswagen is an important development partner for Porsche and also a supplier for approximately 30 percent of Porsche's sales.

Shares in Volkswagen initially spurted higher on the stock exchange here on Monday, but quickly fell back in profit-taking. VW shares opened at 52.75 euros ($63.56), up 0.89 euros or 1.7 percent from the closing price on Friday. But the shares soon fell back to an intraday low of 50.15 euros, down 3.3 percent on the day.

On Monday, Porsche shares were in free-fall in the wake of the announcement, since the acquisition could cost the luxury sports car maker around three billion euros. Porsche shares were down 9.6 percent at 613 euros.

For Porsche, business as usual

Despite the gigantic cost of acquiring a 20 percent stake in Volkswagen, the financial health of Porsche and its future product lines should suffer no consequences.

"The development of the hybrid engine as well as all the projects that we are starting here at Porsche, will not be affected," said the Porsche spokesperson on Monday in Stuttgart. "We have sufficient amounts of liquid assets to be able to finance the whole thing on our own."

Powerful German union IG Metall welcomed Porsche's intervention as a "logical continuation" of the cooperation between the two companies that would make the hostile takeover of VW much more difficult.

"It is good for the company and it is good for Germany," said the union spokesperson Georgios Arwnitidis

Family ties

The concept of luxury sport vehicles has turned Porsche into one of the most successful and well-respected car makers in the world. In 2004-2005, the company had a turnover of 6.36 billion euros and earnings before taxes of one billion euros.

Porsche is still a family-run business. The Porsche and Piech families hold 50 percent of common stocks and exercise 100 percent of share voting rights.

The grandson of VW Beetle designer and Porsche founder Ferdinand Porsche, Ferdinand Piech (photo), became the chairman of the Volkswagen supervisory board in 2002 after serving nine years as Volkswagen's CEO.