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Porsche's $72B Bear Market IPO

Shares in Porsche are the new hot property in the market, with the legendary sports car producer delivering one of Europe’s biggest initial public offerings last week. The IPO is expected to raise €9.4bn with the sale of 12.5% of the company’s non-voting shares to outside investors as Porsche is set to price at the top of its range of €76.50 to €82.50 a share. This means the value of the Stuttgart-based group will sit at a whopping €75.2bn, and make it Germany’s second-largest listing after Deutsche Telekom’s $13bn IPO in 1996, at the time Europe’s largest ever.

But hang on... isn't Porsche already part of the publicly-traded behemoth Volkswagen Group? And doesn’t the struggling economy and bearish market make this a terrible time for an IPO? Well, here’s a full debrief on how Porsche overcame the economic climate to become the second largest listing in German history.

So firstly why do VW want to sell shares in Porsche? Well, the listing fulfils a long-held ambition of the German car giant to try and emulate the success of Ferrari’s 2015 flotation. The sentimental nature of the IPO goes further, with 911mn shares in Porsche being sold, a nod to the brand's famous flagship car model. But beyond this, the IPO also fits in with the conglomerates' long-term plans. Porsche aims to convert all of its models except the 911 to fully electric and VW as a whole aim to rival Tesla’s electric car sales by 2025. The money generated from this IPO will therefore go towards this long-term target, with VW planning to use over half of the revenue to fund its transition to battery technology. Given that the shares are all preferred shares, VW retains control of the company and can therefore commit to its long-term plan more smoothly.

But why now? The timing might not seem perfect, but it’s far from doom and gloom! An IPO of this size doesn’t happen frequently in Europe, and Porsche’s reputation as one of the strongest brands in the car industry makes it an attractive investment. Porsche has an ambitious revenue target of €39 billion for this year with a return on sales of 18%, and the company has been performing well despite the challenging environment. While risk appetite in the global markets is low, investors will look at the YTD success of Porsche and also the clear comparisons with Ferrari, which saw its share price increase by 241% from its IPO price, despite the turbulent climate.

The timing also makes sense because of the urgency VW are placing on their 2025 target.

VW’s advisers say that the firm may also consider listing other parts of the company, including the Ducati bike brand and possibly Lamborghini or Bugatti. With this long-term plan in mind, it makes sense that VW begins with Porsche in this period of uncertainty, as the brand made up 12% of VW’s 2021 revenue. With this long-run outlook in mind, Porsche also acts as a litmus test for VW’s strategy.

The immediate results are looking shaky. Porsche’s stock price had already dropped below the IPO after only three days of trading. However, Volkswagen will hope that, just as with Ferrari, the stock price will begin to climb again once the hype has settled and the markets have calibrated. So will the IPO accelerate Porsche’s growth or act as a roadblock to VW’s plans? Only time will tell!

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