Autos

Chris Bryant is a Bloomberg Gadfly columnist covering industrial companies. He previously worked for the Financial Times.

Faced with billions of euros in scandal-related fines and penalties, many corporate boards probably wouldn't pay a dividend until the full extent of the damage was known.

Not Volkswagen, which according to Handelsblatt is expected to pay at least a token sum at this year's annual meeting. It may seem counter-intuitive, but VW's long-suffering non-voting investors (known as preference shareholders) should hope that it doesn't.

VW's family owners are likely to want the carmaker to pay out at least a small sum because they might otherwise be forced to give voting rights to the preference investors. Germany's share code stipulates that if a company doesn't pay a dividend to preference shareholders, and this isn't compensated for the following year, then they must be granted a vote at the AGM. 

The Porsche and Piech families control 50.7 percent of VW's voting shares via a holding company. Plus the State of Lower Saxony has a 20 percent voting stake, which gives it a blocking minority under the so-called VW law. Yet the families and regional government own a far smaller percentage of VW's subscribed capital: less than 50 percent combined.

Extraordinary Shareholders
VW's family and state investors have much more clout than others
Source: Company

With Qatar Holding (which has 17 percent of voting shares) apparently displeased with the way VW workers are dictating how the company's run, the carmaker could have a shareholder revolt on its hands if everbody was allowed to vote.

Even before the diesel scandal erupted, VW's non-voting shareholders were an unhappy bunch. Called upon time and again to provide VW with fresh funds, they were miffed that the company often embarked on M&A or trophy engineering projects rather than focus on profit and shareholder returns.

VW has only one director you'd reasonably describe as independent: Annika Falkengren, CEO of Swedish Bank SEB. With voting rights, institutional investors could try to force in more outsider voices.

Unfortunately, the Porsche and Piech families are about as likely to let this happen as they are to change Volkswagen's name to Dieselgate A.G.

Even if forced to substantially raise the provision for scandal-related costs -- currently 6.7 billion euros ($7.6 billlion) -- when it reports yearly results later this month, VW will surely argue it has the resources for at least a small shareholder payout.

VW generated about 6.7 billion euros in operating profit in 2015, according to Bloomberg's consensus estimate, and it had some 22.4 billion euros in cash and equivalents at the end of October. Analysts expect it to slash the dividend by more than half to 2.37 euros per share, which would cost it a bit more than one billion euros.

With estimates of scandal-related liabilities running in the tens of billions of euros, it would seem more prudent to skip the payout entirely. So while sticking with it may be presented as a peace offering to shareholders, it's as much about something even more important: control.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. VW's annual report mentions the stipulation on page 74: 
    http://www.volkswagenag.com/content/vwcorp/info_center/en/publications/2015/03/Y_2014_e.bin.html/binarystorageitem/file/GB+2014_e.pdf

To contact the author of this story:
Chris Bryant in Frankfurt at cbryant32@bloomberg.net

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James Boxell at jboxell@bloomberg.net