The stock market finally broke out of its slump on Wednesday, but market participants appear disappointed with the lack of follow-through in premarket trading on Thursday. Futures contracts on the Dow Jones Industrial Average (^DJI 0.69%), S&P 500 (^GSPC 1.20%), and Nasdaq Composite (^IXIC 1.59%) were down as much as 1% as of 9 a.m. ET, giving back a sizable portion of their gains from the previous day.
The bear market in stocks in 2022 has brought the initial public offering (IPO) market to a screeching halt, with a huge decline in the number of companies seeking to come public. That's only natural in a market environment in which privately held businesses can't expect nearly as favorable a reception from investors as they would have gotten during the boom times in 2021. However, that didn't stop German automaker Porsche from doing an initial public offering in Germany, and car enthusiasts and would-be shareholders alike are paying close attention to how the IPO is going.
Image source: Porsche.
A complex corporate structure
Before getting to the details of the Porsche IPO, investors need to understand the players currently involved with the automaker in order to avoid confusion. There's currently a company, Porsche Automobil Holding SE (POAHY 0.96%), which trades both in Germany and through American depositary receipts in the U.S. over-the-counter market. However, that stock represents a holding company that holds an ownership stake in Porsche's operating business, with Volkswagen (VWAGY 0.67%) having had a majority stake. Therefore, Porsche Automobil shares are not the subject of the IPO, and investors can't assume that the value of those existing shares will move in lockstep with the newly offered Porsche IPO shares.
The structure of the IPO is also complicated. Porsche will now have an equal number of common and preferred shares. Common shareholders will be able to vote their shares, while preferred shareholders won't get a vote. However, preferred shareholders will get a small additional dividend of 0.01 euros on top of any dividend that common shareholders get.
What the IPO does
The IPO will serve a couple of purposes. The most obvious is that it will raise money for Volkswagen, which is looking to make huge capital investments in order to ramp up its electric vehicle (EV) operations in an effort to compete more effectively against Tesla. Europe's EV ramp-up is on a faster growth trajectory than the transition in the U.S. market, and Volkswagen has already worked hard to achieve a leadership position in the electrification of the European auto fleet.
In addition, the move sorts out the complex relationship between Volkswagen and the families involved in Porsche, who themselves have had a substantial holding in Volkswagen shares since the two businesses fully intertwined themselves back in 2012. Indeed, at one time, it had been Porsche that had considered taking over Volkswagen, but the financial crisis in 2008 and 2009 put the brakes on those plans and brought about the more complicated ownership structure that now exists. The IPO will clarify the relationship and give the family investors a blocking minority interest in newly public Porsche.
A green flag
Porsche's shares moved higher by 2% in early trading in Germany on Thursday morning. That was especially noteworthy given the broader German market's 1% retreat, and it was particularly impressive given the size of the offering at 75 billion euros. The final IPO pricing of 82.5 euros per share was at the top of the anticipated range, with many interested investors not getting the share allocations they had hoped for.
The stagnant IPO markets lately have reflected low share prices and a lack of investor enthusiasm for most of the types of businesses that are seeking capital now. Porsche is a rare company with solid prospects and a strong brand, and that's why it's standing out in the IPO market today.
