The merger between Volkswagen and Porsche has now stalled and investors are considering the possibility that it may never happen.
Two big issues stand in the way of the deal.
Uncertainties over German tax law mean that any merger couldn’t take place until 2014 without incurring a massive, potential €2 billion penalty. After that date the potential liability drops to zero. Meanwhile law suits in the U.S. threaten massive charges against Porsche for allegedly manipulating the stock market as it sought to takeover VW. Viking Global Investors allege this activity cost it $390 million. Another law suit from short-sellers alleges a loss of more than £1 billion.
A decision on the more than $1 billion law suit is expected to be announced on January 17, 2011.
A €5 billion capital increase by Porsche is expected to go ahead in the first half of next year.
Deutsche Bank thinks the chances of a merger are receding.
“While (VW) management puts a 70 per cent probability on the merger happening, we note that this is already a meaningful shift away from the assessment just a few months back. We continue to see a slim chance for a successful execution of the merger,” said Deutsche Bank analyst Gaetan Toulemonde.
VW owns 49.9 per cent of Porsche.
Whatever happens to the planned merger, Volkswagen CEO Martin Winterkorn has said Porsche’s sports car business will in any case be integrated into VW.
Neil Winton – November 1, 2010