Volkswagen AG (OTCMKTS:VWAGY) announced earlier this month that it will spin off shares of Porsche in an Initial Public Offering (IPO).
An IPO is when a private corporation offers shares of a stock to the public in a new stock issuance for the first time. It allows a company to raise equity capital from public investors.
And Volkswagen, the largest shareholder in Porsche, priced the IPO at the top of its targeted range, putting the IPO on track to become one of the biggest public offerings in Europe ever.
Well, folks, shares of Porsche debuted this past Thursday, September 29, on the Frankfurt Stock Exchange. Volkswagen offered 911 million shares in a nod to Porsche’s famous 911 model.
In today’s Market 360, we’ll look at the details of the Porsche IPO and how it could help Volkswagen pull ahead in the EV race…
Porsche’s IPO Hits the Market
Priced originally at 82.50 euros, the stock rose 5% in the late morning, peaking at 86.76 euros. However, it began losing slight gains throughout the trading day, and closed at 82.52 euros, still up 2 cents from the expected IPO price.
That gave Porsche a market value of more than 75 billion euros – around 73 billion in U.S. dollars.
This puts Porsche among the top five biggest car markers measured by market value – and right behind its parent company, Volkswagen. Leading the market still, though, is Tesla, Inc. (NASDAQ:TSLA), with a valuation of more than $886 billion. Currently, Tesla is trading at 47X estimated 2023 earnings, but Tesla still gets lots of EV tax credits, and it has not yet had to pay U.S. taxes yet.
Under the terms of the IPO offering, 12.5% of Porsche’s stock became available to the public in the form of non-voting shares. About 40% of that was bought by four big investors: Qatar Investment Authority, Norway’s Norges Bank Investment Management, American money manager T. Rowe Price, and ADQ, an investment arm of the Abu Dhabi government.
“Today is a great day for Porsche and a great day for Volkswagen,” Arno Antlitz, Volkswagen’s chief financial officer, said. “We were convinced despite the challenging environment this IPO would prove successful, and we were right.”
Volkswagen expects 9.4 billion euros in proceeds from the IPO and is raising another 10.1 billion euros from a separate private placement of voting shares to Porsche SE, creating proceeds of nearly 20 billion euros from the initial offering.
And what does the company plan to do with these earnings?
Ramping Up EV Spending
Well, about 50% of the funds will be paid out to Volkswagen shareholders, while the other half will be used to finance a shift to electric vehicles.
Many car companies have been under pressure to develop electric vehicles (EVs) and battery factories as of late – a pressure caused by Tesla’s dominance in the market and material shortages.
And as supply chain issues continue to affect semiconductor chips, and now a copper shortage looms, creating Evs will be costlier. So, the capital raised from Porsche’s IPO will help Volkswagen in the race toward manufacturing electric vehicles.
Porsche has high operating margins and massive brand loyalty, and it has already begun assisting Volkswagen’s EV transformation.
Porsche will have a Macan EV in 2023 to accompany its hot-selling Taycan EV sedan. It also plans to initially electrify its iconic 911 via a hybrid model, which will compete with its Porsche Turbo S model. In other words, its fastest-performing sports cars will utilize electrification in the upcoming years.
Frankly, I think Porsche is a great company, as it makes great high-quality vehicles. And its electrification plan for its hot-selling Macan EV is expected to be an instant success.
Now, as you know, I like to invest in fundamentally superior stocks, like Volkswagen. In fact, I added Volkswagen to my Growth Investor Buy List way back in August 2021. And as the EV trend continues to rev up, we want to be in the driver’s seat when it really puts its pedal to the metal.
There is still growth out there, and that’s where the best wealth-building opportunities are.
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Source: InvestorPlace unless otherwise noted
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Volkswagen AG (VWAGY)
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