Automaker Porsche exercises option to lift stake in Volkswagen to 31 percent

Porsche AG said Monday it had moved to increase its stake in Volkswagen to nearly 31 percent in a move aimed at shielding Europe's biggest automaker from hostile takeovers.

The move to increase Porsche's influence, long expected by analysts and markets, triggered a mandatory takeover offer under German law.

Stuttgart-based Porsche said it paid Ђ100.62 (US$134.10) a share and raised its stake in the maker of the Jetta, Golf and Polo by 3.6 percent. The price per share was about 14 percent lower than Friday's closing price of Ђ117.70 (US$156.86).

"The completion of the share acquisition is expected to take place on Wednesday," Porsche said in a statement.

Shares of Porsche rose 2.5 percent to EUR1,143 (US$1,523.28) while Volkswagen shares fell nearly 3.8 percent to EUR113.91 (US$151.81) in Frankfurt.

Porsche's supervisory board, the U.S. equivalent of a board of directors, agreed to the plan on Saturday in part to protect Volkswagen from hedge funds and foreign rivals.

But Porsche has said it does not expect the mandatory takeover offer its move triggered to be successful because its is offering only the legal minimum price, which is below the current market price.

Porsche is Volkswagen's largest shareholder, followed by the German state of Lower Saxony, which holds 20.3 percent.

The company said it was seeking the larger stake as a response to fears that European Union judges will force the German government to repeal its law blocking a foreign takeover of Volkswagen, which is looked to as both an industrial powerhouse and a major employer.

The EU took Germany to court over the issue in 2005, and statements from a top legal official have indicated the EU judges may decide against Germany.

Porsche said it assumed "that the European Court of Justice would confirm the invalidity of the VW law and so cause the German government to change or abolish this law."

Porsche plans to form a new holding company that will make Porsche AG a wholly owned subsidiary of the new company, which will also oversee the stake in Volkswagen. The Wolfsburg-based company will remain independent.

Analysts saw the rationale for Porsche's move but said it could hurt the company in the long run, reports AP.

"For Porsche shareholders, the acquisition of more stock in VW represents a further step in the wrong direction as far as earnings quality is concerned, in our view," said analyst Stephen Cheetham at Sanford Bernstein Ltd.

"The more of VW Porsche owns, the less attractive it becomes to investors attracted by its superior growth and returns: If Porsche winds up owning a majority stake in VW, we would expect the investment characteristics of VW to dominate."