German automaker Volkswagen (OTCMKTS:VWAGY) will be hoping that its luxury brand Porsche will live up to its marketing ethos of having no substitute, with the fate of both VWAGY stock and an upcoming spinoff on the line.
According to a CNN Business report earlier this morning, Volkswagen will move ahead with an initial public offering for Porsche. Per the company’s press release late Monday, Volkswagen stated that the Porsche IPO will occur later this month or in early October. However, management also specified that the deal would be “subject to further capital market developments.”
Per CNN, up to 12.5% of the premium brand will be offered to investors in the form of preference shares. Also, nearly half of the Porsche IPO proceeds will be distributed to stakeholders of VWAGY stock in the form of a special dividend. Volkswagen plans to use the proceeds from the new listing to build more electric vehicles (EVs).
To be clear, the structure of VWAGY stock and the Porsche IPO presents much confusion. Currently, retail investors may acquire shares of Porsche Automobil Holding SE (OTCMKTS:POAHY). However, Porsche SE represents the underlying family’s interest in the automotive brand, which also owns most of Volkswagen’s voting rights.
However, Porsche AG represents the true automotive business and thus, the subject of the Porsche IPO.
VWAGY Stock and the Troubled Timing
Although Porsche epitomizes wealth and glamour — featuring in countless Hollywood movies such as the classic “Risky Business” — not everyone is enthused about its public debut. VWAGY stock may be up around 5% heading into the Tuesday afternoon session but longer-term viability concerns remain.
Specifically, the timing of the Porsche IPO raises eyebrows. While investors expect a valuation between $60 billion and $85 billion for the sports car brand — making it one of the biggest public debuts in German history — it also comes amid troubling circumstances.
Per CNBC, European shares incurred a downward spiral this year against record-high inflation and Russia halting gas supplies. “Market conditions are currently very unfavourable,” said Ingo Speich, head of sustainability and corporate governance at top-20 Volkswagen investor Deka Investment.
Also, analysts at Stifel weighed in: “VW should work on its timing: the plan to IPO was announced the very same day Russia invaded Ukraine, the ‘Intention to Float’ comes out exactly when Russia stops supplying gas to Germany.”
Critically, CNBC mentioned that Germany’s car association expects a 4% drop in passenger car deliveries in Europe this year. Also, the much-anticipated post-pandemic recovery has yet to materialize. Notably, despite the up day for VWAGY stock, it’s shed approximately 36% of market value on a year-to-date basis.
Why It Matters
Those hoping to score a deal with a used Porsche during the new normal likely encountered disappointment. According to Kelley Blue Book, Porsche enjoys a reputation for leading in resale value among luxury automakers. Therefore, bullish investors of VWAGY stock may be hoping that this demand transfers to the Porsche IPO.
However, it’s also important to realize that even in the luxury car realm, the sector has not been insulated from economic pressure. Rival automaker Ferrari (NYSE:RACE) slipped around 27% this year, posing concerns about Porsche’s debut.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.