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VW Porsche Merger Delayed As Confusion Reigns

VW and Porsche SE announced that there is no chance their merger can be completed this year because of the threat of outstanding law suits, and investors struggled to figure out the long-term implications.

Volkswagen and Porsche agreed to combine in 2009 after Porsche’s finances were threatened by a €10 billion debt which it racked up after trying unsuccessfully to takeover VW.

Since then law suits from disgruntled investors in Germany and the U.S. have undermined the merger. Investors in the U.S. have sued for $1 billion they claim was lost in a short-seller squeeze allegedly orchestrated by Porsche. Institutional investors in Germany are seeking €2.5 billion on similar grounds.

“Investors are entitled to be baffled about what happens next. Odds on a merger anytime soon have declined sharply, even if this remains management’s preferred option,” said the Financial Times Lex column.

Credit Suisse analyst Arndt Ellinghorst was sanguine.

“In our view not much has changed. VW and Porsche are best advised to extend the the current merger framework agreement and add that a merger will be conducted as soon as legal risks have diminished,” Ellinghorst said.

When might that be?
Ellinghorst gave no hint when that might be.

Deutsche Bank analyst Jochen Gehrke thinks there’s little chance of a formal merger.

“This development confirms our long stated view and we believe that while both companies have stated that before year-end both management teams will possibly propose an alternative route to the put/call structure to the board, the eventual merger probability remains very low,” Gehrke said.


Neil Winton – September 20, 2011

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