Despite recent legal risks, Porsche SE still expects to proceed with plans to merge with Volkswagen AG. Porsche SE, in February 2011, had to lower the likelihood of a successful merger in 2011 from a previous 70 percent probability to just even odds, after an investigation into insider trading by its former CEO threatened to hold up the deal.
Porsche’s management board currently anticipates that a successful conclusion of the legal and tax reviews would be possible so that the merger can occur – potentially after 2011. Two weeks ago, Porsche SE shares dropped sharply when the delay was announced.
Investors had been worried that a rights issue would be highly dilutive if carried out before the exchange ratio could be announced. Porsche SE is being absorbed by VW. In order to carry out a deal, VW’s finance chief and CEO have taken over Porsche SE.
The lower probability of a merger meant Porsche SE had to reduce the value of an options deal that allows VW to buy the rest of the sports car business.
Analysts say any Porsche loss should result in a corresponding non-cash accounting gain for VW of the same amount. In the truncated fiscal year 2010 spanning the last five months through December 2010, Porsche SE said its sports car business generated an operating margin of 17.8 percent. [via reuters]