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Court Ruling Removes VW-Porsche Merger Obstacle

Doubts Remain Over Tax Ruling, Preference Shareholders

The merger between Volkswagen and Porsche may have moved a bit closer when a U.S. court dismissed a $2 billion law suit from 39 hedge funds who believed they had been misled while Porsche was buying shares in its failed bid to take over VW.

The plaintiffs have 30 days to decide whether to appeal.

Commerzbank said the ruling removes a major obstacle to the planned €5 billion capital increase Porsche plans in the first half of 2011.

BHF Bank said Porsche’s legal risk profile had improved.

“The likelihood of a U.S. lawsuit entailing punitive damage charges looks substantially diminished in this regard,” said BHF-Bank analyst Aleksej Wunrau.

Neither bank commented on the implications for the planned VW-Porsche merger.

Probability rising
Deutsche Bank, which has consistently maintained skepticism on prospects for the merger, said news of the court’s decision means probability for the merger to succeed is rising.

“However, we continue to point to the independent approval of VW preference shareholders as the final hurdle (assuming that legal claims get ended soon) which will be challenging to pass in our view”, Deutsche Bank said.

There is another big hurdle for the deal to surmount. Uncertainties over German tax law mean that any merger couldn’t take place until 2014 without incurring a massive, potential €2 billion penalty. A ruling is expected soon.

VW owns 49.9 per cent of Porsche, after the luxury sports car maker failed in a hostile takeover attempt of Europe’s biggest mass car manufacturer. VW agreed to combine with Porsche in August 2009 when Porsche’s debt tripled to more than €10 billion after it failed to capture VW by buying stock through options trading.

Neil Winton – January 15, 2011

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