NORWAY - Norges Bank Investment Management (NBIM) has warned it will not support Volkswagen's investment in Porsche unless the VW Supervisory Board "takes steps to alleviate our concerns" relating to conflicts of interest and shareholder treatment.

The organisation, which manages the NOK 2.5trn (€299bn) Government Pension Fund - Global, has published a letter written to the board of the car manufacturer yesterday outlining its "deep concerns over Volkswagen's agreed and planned dealing with Porsche entities and their controlling owners".

In the letter, signed by Anne Kvam, global head of corporate governance at NBIM and senior analyst Ola Peter Krohn Gjessing, NBIM claimed it had already addressed the board about conflicts of interests, and the treatment of shareholders in the upcoming transactions but had received "no adequate response".

It warned that the letter is designed to show it holds the Supervisory Board, chaired by Dr Ferdinand Piëch, "accountable for practices that are deemed unacceptable".

NBIM claimed the information currently available about the deal "fails to assure us" that the plans will benefit Volkswagen's shareholders equally, or that conflicts of interest have been handled satisfactorily. "In total therefore, the deal appears unacceptable".

It noted there are no justifiable reasons for Volkswagen AG to "assist the Porsche and Piëch families by buying out their privately held automobile trading business of Porsche Holding Salzburg", and instead called on the carmaker to cancel plans to buy these assets unless it can demonstrate how the price was determined and its strategic value to the company.

It also claimed the proposed deal lacks transparency, and this "stealthiness" imposes unnecessary risk to non-controlling investors, while the company has also failed to show how it has avoided conflicts of interest.

As a result, NBIM said, it is "left with the impression that the board is strongly conflicted and that Porsche's controlling families might have used influence to secure values to themselves at the expense of Volkswagen AG and its non-controlling owners".

It therefore stated in the letter that there may be reason to examine whether individual board members "have fulfilled there fiduciary duty to the company" by authorising the transaction, but as a first step it requested "open communication" between the board and shareholders.

It also warned that if the board does not "take steps to alleviate our concerns we see little reason to support the execution of the proposed transactions. As investor we will consider the options open to us in this respect."

Figures from the NBIM website revealed at the end of 2008 the Government Pension Fund - Global had equity holdings in Volkswagen AG of NOK 2.62bn, which was equivalent to 0.35% in ownership and voting rights of 0.15%.

Under the deal approved by the supervisory board in August, VW will take a 42% stake in Porsche AG by the end of 2009 for the price of €3.3bn and will buy the family-owned Porsche Holding Salzburg for €3.55bn. All of which is to be financed by the issue of new preference shares in 2010.

Following the deal "the Porsche and Piëch family shareholders will remain the largest shareholders at Volkswagen, and the State of Lower Saxony will continue to be the second-largest shareholder in the Volkswagen group in the future".

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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