What’s Going On Here?Super-charged demand for Porsche shares means Volkswagen is pressing ahead with the luxury carmaker's initial public offering (IPO). What Does This Mean?With the average investor currently a bag of nerves, most companies would steer clear of an IPO anytime soon: after all, an atmosphere of lackluster demand and falling prices isn’t very inviting, and a more stable market might be a safer bet. But the world works differently for Volkswagen (VW). Earlier this month, it hinted at strong investor enthusiasm for its planned IPO of Porsche – and on Tuesday, new details suggested that the shares on offer will probably be dwarfed by demand. With state-backed investors like the Norwegian and Qatari wealth funds waiting in line to snap up shares, VW should have no trouble raising the €9.4 billion ($9.4 billion) it’s aiming at on September 29th. Why Should I Care?The bigger picture: Still in the lap of luxury.
It pays to be a luxury firm these days. See, new data out this week shows German producer prices – prices paid at the wholesale level – jumped an eye-popping 45.8% in August versus the same month last year (tweet this). For most sellers, the only feasible response involves jacking up prices, at the risk of losing cash-strapped customers. Not so for Porsche, though: would-be owners of 911 Carreras can afford to spend a little more without remortgaging the house, which gives Porsche the power to hike prices and protect profits – making it an attractive pick for investors.
Zooming in: Keeping it in the family.
VW’s also offering 25% of common shares to the Porsche-Piech family, in a deal that will see the founding clan regain control of the company. That’s good news: when it comes to luxury goods, there’s often a trade-off between short-term profits and long-term brand value. Family-controlled companies, taking a longer view of things, are often more interested in brand value over time – a valuable trait in the eyes of long-term investors. | 