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VW's Piech, Seeking New Term, Criticized by Investors Update 3

By Chad Thomas April 19 (Bloomberg) -- Volkswagen AG Chairman Ferdinand Piech, seeking re-election to another term today, was criticized by shareholders for replacing the chief executive officer and his ties to Porsche AG, Volkswagen's largest stakeholder. ``We will vote against the re-election of Mr. Piech because of his conflict of interest,'' said Hans-Christoph Hirt, the associate director for continental Europe at London-based Hermes Pensions Management Ltd. ``It is not in the interest of Volkswagen that he remains on the supervisory board.'' The 70-year-old Austrian has sought to consolidate his power in the last year as Porsche, which his family controls, increased its holding and launched a takeover bid for Europe's largest carmaker. Piech replaced CEO Bernd Pischetsrieder in January with Audi chief Martin Winterkorn, who reorganized the group, resulting in the departure of Volkswagen-brand chief Wolfgang Bernhard. ``If we had one of those applause meters, then Mr. Pischetsrieder surely would have won because he got the most applause,'' Hans- Martin Buhlmann of VIP, Association of Institutional Shareholders said during today's annual shareholders meeting in Hamburg. ``The chairman of this meeting concentrates purely on himself.'' Shares of Volkswagen fell 10 cents, or 0.1 percent, to 115.12 euros. The stock has gained 34 percent this year, the biggest gainer on Germany's benchmark DAX Index. Piech seems assured of another term because the two largest shareholders, Porsche and the state of Lower Saxony, have said they'll support him. Board candidates need the support of a simple majority of shareholders present at the meeting to be elected. Porsche and Lower Saxony have more than half the voting rights.

Porsche Bid Porsche last month made a bid for Wolfsburg, Germany-based Volkswagen, valuing the carmaker at 35.8 billion euros ($48.7 billion), a low-ball offer designed to leave the sports-car maker with a controlling stake rather than full ownership. Porsche already owns 30.9 percent of Volkswagen. Piech also sits on the Porsche board. ``We are not pleased with the corporate governance at Volkswagen because of this conflict of interest,'' said Hansgeorg Martius, a board member of SdK shareholder group. Porsche submitted documentation for the Volkswagen takeover offer to German market regulators today, Porsche spokesman Frank Gaube said at the shareholders meeting. The regulators have 10 days to review the bid before the official offer period for investors will begin, Gaube said.

Board Vote Shareholders today will first vote on whether to re-elect Piech for another five-year term to the supervisory board. Afterward, the board will hold a special meeting to vote on him remaining chairman. Along with the two-largest shareholders, Piech has the backing of the board's labor leaders. Combined, they control 15 of the 20 seats on the board. ``Volkswagen AG has implemented all the recommendations of the German corporate governance code,'' Piech said in response to complaints about transparency at the carmaker. Since becoming CEO, Winterkorn, 59, has reorganized management, leading to Bernhard's departure. Bernhard had been working to develop new models, including a small sport-utility vehicle, a remake of the Scirocco sports hatchback and a new version of the best-selling Golf, all of which are scheduled to come to market in 2008. ``Five years ago I was hesitant to suggest someone as my successor who was very close to me a personally,'' Piech said in response to the criticism. ``I corrected my mistake last November.''

Volkswagen's Earnings Volkswagen reported yesterday that first-quarter profit more than doubled to 740 million euros on higher Audi and Skoda sales and job cuts initiated by Pischetsrieder. First-quarter revenue gained 5.1 percent to 26.6 billion euros. Volkswagen said in February that 2007 revenue will rise, led by new versions of Skoda's Fabia entry-level model and Audi's TT Roadster sports car. Audi sales have been boosted in the last year by the new Q7 sport-utility vehicle, while Skoda has gained on sales of the new Roomster all-purpose vehicle. Volkswagen also benefited in the first quarter from a reorganization begun last year by Pischetsrieder and Bernhard that includes eliminating 20,000 factory positions, or 20 percent of the namesake brand's west German workforce. Workers agreed last September to lengthen their workweek for no additional pay. The first-quarter profit gains ``should be seen in the light of the relatively low comparative figures'' for last year, Volkswagen said. ``The success of the restructuring measures led to higher results in the second to fourth quarters of 2006.''

Volkswagen Board After Porsche bought into Volkswagen in September 2005 and became the largest shareholder, Piech installed Porsche CEO Wendelin Wiedeking and Chief Financial Officer Holger Haerter on the Volkswagen board. He used that backing, along with that of the board's labor leaders, to push out Pischetsrieder in favor of Winterkorn, a long-time ally. Pischetsrieder had received a new contract from the board last May. ``I don't understand why you give a man a five-year contract extension when you have it in your head to get rid of him a few months later,'' Ulrich Hocker, head of the DSW shareholder group, said.