Hedge fund lawsuits threaten VW-Porsche merger

[Blackseal]

Litigation tied to Porsche's failed attempt to buy a controlling share of VW could now threaten the proposed VW/Porsche merger which was announced last year.

 

In a VW prospectus on the merger, the litigation was listed as a risk factor that could delay or even derail the merger plan.

 

Last December, VW obtained a 49.9 percent stake in Porsche AG, the sports car division of holding company Porsche SE. According to the plan, VW will have to pay for the rest of Porsche AG as well as buy the Porsche Holding dealer network, the largest in Europe, by 2011. The lawsuits threaten VW Group's ability to fund the deal without going into substantial debt.

 

Porsche SE is accused of breaching market rules during its (failed) hostile takeover of VW which took place before the companies announced what amounted to a reverse takeover of Porsche by Volkswagen Group in 2009. Lawsuits filed by hedge funds, who claim to have lost more than 1 billion in what they contend was a manipulation of the stock market, were listed as a risk factor in the VW prospectus.

 

"The merger may not be possible at all, or may only be carried out at a later date," reads the prospectus.

 

How much of a risk the litigation is, analysts are not sure. But one banker did say the level of risk as described in the prospectus was "unusual."