Porsche Exposed free essay sample

Do you believe that Porsche’s management is appropriately concerned with stockholder wealth? Does Porsche’s ownership structure work to the benefit or detriment of public shareholders? Although Porsche is publicly traded, the company is controlled by only two stockholders, the Porsche and Piech families. As the quotation by Holger Harter makes clear, the two families hold exclusive shareholder influence over management. An interesting point for class discussion is whether the families actually ever exercise these rights.It is not clear from the information or evidence presented that they influence or direct current management headed by Dr. Wendelin Wiedeking. They may simply agree with current leadership and therefore remain quietly complicit. What this means for minority shareholders is that they do participate in the distributed profits and any and all capital gains (losses) which the traded preference shares provide, but they have no voting rights and therefore no ability to act as owners in whole. We will write a custom essay sample on Porsche Exposed or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page It also explains in part the company’s relatively uncooperative response to the requests of analysts and stock exchanges for more frequent reporting (as well as more detailed disclosure in their financial reporting). A final related component of this governance discussion is the structure of management compensation. The compensation packages of senior management were nearly exclusively focused on the recorded profitability of the firm from year to year, and not on the market’s assessment of that performance, the share price. . In your opinion is Porsche’s current currency hedging strategy protecting it from adverse exchange rate changes? Will it work as well in the long run as in the short run? Evaluate the other hedging strategies available to the firm and compare and contrast alternatives. Exposure: Porsche’s currency exposure is fundamentally a long-term operating exposure arising from where and how it operates its business.Because the company is relatively simple in structure compared to most multinationals, and transparent in the type of currency exposure it incurs, most of its currency exposure can be viewed as a series of transaction exposures, both existing (already an existing account receivable or inventory line item on the company’s balance sheet) and anti cipated(not yet contractually existing, but with a high likelihood that they will occur). Alternatives. There are a number of alternatives, which we cover here in brief. 1) Pass-through. The discussion of exchange rate pass-through is relevant, but not really a hedging solution. Pass-through does exactly what it says, it passes on to the buyer a portion of the exchange rate movement. This is in effect what Porsche has already done to some degree as described previously. As always, at some point the price elasticity of demand for the product changes so that further price increases through pass-through result in declining sales revenue. 2) Diversifying operations. If the company believed that it would be continuing to generate significant proportions of its sales in US dollar markets, it could match these sales values with production values by manufacturing in a US dollar environment. Other auto companies like BMW (produces today in South Carolina) and Mercedes (produces today in Alabama) have pursued this strategy successfully.As each year matures, and the associated options expire, the company has replaced them with a new three-year option position. (The three-year time horizon may actually be longer, but Porsche has not been willing to describe in any adequate detail the nature of how their hedging program is structured or operated. ) 3) Do you think Porsche’s currency hedging strategy reflects a particular bias of management and ownership regarding shareholder value creation? Do you believe that Porsche can continue to predict the future movement of the euro?Students generally seem to come to a conclusion that, although the current hedging program is expensive to purchase and operate, it has done well to date. Also, although other premium-priced automobile manufacturers have chosen to diversify operations, and seemingly successfully maintained the con sumer’s faith in their quality and brand, this is a choice of management, and difficult to second-guess. That said, in the end, the enormity of Porsche’s exchange rate exposure is not going to go away.Hedging it with financial derivatives is inherently a stop-gap measure, and does nothing to restructure or prepare the company for the long-term. Therefore, the possibility of a financing hedge, dollar-denominated debt, should clearly be reconsidered. Post Script. In January 2004 the following article appeared in the Financial Times (Porsche itself did not make any press release related to this issuance). It seems that Porsche was beginning to increase the use of US$debt