Volkswagen AG’s merger with Porsche still faces significant legal and tax risks, analysts have said, citing details from Volkswagen’s prospectus for last month’s capital increase.
The risks stem from potential tax liabilities and hedge fund lawsuits alleging former Porsche executives manipulated markets during the Stuttgart-based company’s attempted takeover of VW, Europe’s largest automaker, Reuters reported.
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These risks could force the companies to delay or abandon a planned merger of Porsche Automobil Holding SE into Volkswagen next year, VW said in its prospectus published in late March.
But a VW spokesman told the news agency plans to merge in 2011 “have not changed”.
A Porsche spokesman said the risks listed in the prospectus stemmed from a legal document which lists “every possible risk” even if the likelihood if these risks materialising is “limited”.
A banker familiar with the matter told Reuters it was too early to say whether Porsche and VW’s merger plans needed to be delayed.
Another banker said the level of risks factors listed in the prospectus was “unusual”.
In a note published on Thursday, Bernstein Research analyst Max Warburton said the risks could force VW to pay cash for a remaining 50.1% stake in Porsche’s sports car business. This, in turn, could be bad for Porsche and VW.
For Volkswagen, a cash deal may mean “significant indebtedness or the need for a further capital raising”, Warburton wrote. A cash deal would also probably trigger significant writedowns related to Porsche, Warburton added.
VW’s prospectus said the damages sought by hedge funds for alleged breaches of capital markets rules could “place a considerable burden on Porsche’s financial resources and liquidity position, and if substantial in magnitude, could even lead to the insolvency of Porsche Automobil Holding SE.”
In January a group of investment funds sued Porsche SE and two former top executives accusing them of fraud in a “short squeeze” that caused the funds to lose more than US$1bn.
Potential liabilities at Porsche SE – the family-controlled holding company – could prevent the planned merger, VW said in the prospectus.
“The merger may not be possible at all, or may only be carried out at a later date, and the planned target structure of the integrated automotive company with Porsche may not be achieved or may only be achieved at a later point,” it said.
Reuters noted that Porsche SE racked up billions of euros in debt in an attempt to acquire 75% control of VW’s votes, leading to the dismissal of Porsche’s two top managers and what in effect is a reverse takeover by VW.
The first step was selling to VW a 49.9% stake in the Porsche AG sports car business.
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