That the planned merger would be held up by the legal liabilities hanging over
Porsche as a result of its stakebuilding in VW three years ago was always a
strong possibility.
Claims by irate investors run to billions of euros. So far, all is
indecisiveness: US courts must decide whether they have jurisdiction, and
German prosecutors must consider pursuing a criminal case against former
Porsche executives. That, in turn, could influence the prospects for
successful civil litigation.
With no chance of clarity on these questions in the near term, the companies
have called off any plans for a deal in 2011. Investors are entitled to be
baffled about what happens next.
Legal liabilities
The neatest outcome would be for the legal challenges to go in Porsche’s
favour, with the US declining jurisdiction and Stuttgart prosecutors backing
off. But no one wants even to try quantifying the odds on that, and it could
be years before the legal liabilities are clear.
Alternatively, the two could use a back-up agreement already in place that
allows VW to buy the 50.1 per cent stake that it does not own in Porsche AG,
the operating sports car business, for €3.9bn. But that may have
unattractive tax implications for the next few years.
Plan C?
VW’s statement last week talked of analysing “other potential courses of
action” that could lead to an integrated group. But VW gave no details - and
few believe there will seriously be a Plan C at this stage. In short, odds
on a merger anytime soon have declined sharply, even if this remains
management’s preferred option.
That means that the likelihood that the back-up deal will be enforced has
increased. But much more significantly, any action is now further into the
future. And even with Porsche shares down 13 per cent last week, it would be
a brave investor who bet against that.
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