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Porsche Claims Victory After German Court Dismisses Hedge Funds Lawsuit

March 19, 2014

Porsche Automobil Holding SE successfully avoided a $1.95 billion lawsuit when a German court rejected the claims that the automaker misled investors during its failed attempt to take over the Volkswagen Group in 2008.

A group of 23 hedge funds, which include Glenhill Capital, Greenlight Capital and Viking Global Investors, accused Porsche’s former holding company of withholding information about the German carmaker’s plans to acquire Volkswagen and secretly buying more shares of Europe’s biggest car manufacturer, resulting in the loss of billions.

According to the lawsuit, Porsche SE’s executives made misleading statements to investors prior to Porsche’s failed attempt to acquire Volkswagen. During the failed takeover, stocks of both Porsche and Volkswagen rose and fell.

Judge Carola Wittig of the Stuttgart Regional Court sided with Porsche SE, saying that there is no proof that the holding company deliberately misled shareholders and that there is not enough evidence that the automaker was planning to acquire VW as early as 2008. According to Judge Wittig, while Porsche SE is supposed to be truthful to its investors, it is not obligated to reveal its plans of acquiring VW shares and buying the options on VW stock.

The court also said that even if Porsche SE did mislead the hedge funds, the company would still not be liable for losses.

This is yet another victory for Porsche SE, following two other rulings in favor of the company over the takeover issue. In 2012, two other cases were dismissed in Braunschweig. This decision bodes well for the holding company, which is still involved in other pending related cases.

Porsche has faced several lawsuits since the company revealed in October 2008 that it had control over 74.1 percent of Volkswagen AG through options and that it was aiming to acquire 75 percent in an attempt to take over the company. This revelation caused VW’s stock to go up as a result of the short sellers’ purchase of shares. A few months before the announcement, Porsche refuted claims that it was planning to takeover VW.

At present, Porsche SE no longer directly controls the automaker’s production. Its biggest shareholder is Volkswagen, with 32 percent of total equity and more than half of voting shares. The supervisory board of the holding company includes Porsche Chief Executive Matthias Müller as well as VW Chief Executive Martin Winterkorn.

Porsche SE’s current legal woes can be traced back to 2005. The German automaker started purchasing VW shares in its attempt to be the biggest single shareholder of the VW Group. Two years later, Porsche already secured a 30 percent stake in the company. Then Porsche Chairman Wendelin Wiedeking initially denied that the company was planning a takeover, which was eventually confirmed in 2008. Both automakers were supposed to merge in August 2009.

Unfortunately, the financial crisis in 2008 prevented Porsche from completing the acquisition. Banks refused to lend money to the automaker to finalize the takeover, so the company was forced to look elsewhere for funding. Meanwhile, Volkswagen enlisted the help of German chancellor Angela Merkel as well as its own investors in encouraging investors in Qatar to work with the company.

In the end, Volkswagen acquired Porsche instead, with the latter becoming the VW Group’s 10th brand.

Photo credit: calflier001/ Flickr/ CC BY-SA

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