Volkswagen’s merger with Porsche still faces significant legal and tax risks

Article by Christian Andrei, on August 25, 2010

Serious legal and tax risks continue to haunt Volkswagen AG's merger with Porsche Automobil Holding SE. Details from VW's prospectus for last month's capital increase show that these risks originate from potential tax liabilities and hedge fund lawsuits, which claim that former Porsche executives manipulated markets as it attempted to take over VW.

It's likely that these will risks will compel the companies to delay or at worse, abandon a planned merger of Porsche SE into VW next year. Last Thursday, a VW spokesman said that the plans to merge in 2011 are unchanged.

Meanwhile, a Porsche spokesman said that the risks listed in the prospectus come from a legal document that indicates all the possible risks even if the potential of those risks actually taking place is limited.

A banker who had knowledge about the issue said that it's still too early to say if there's a need for Porsche and VW's merger plans to be delayed.

Another banker considers the level of risks factors listed in the prospectus to be unusual. Bernstein Research analyst Max Warburton said last Thursday that these risks could force VW to pay cash for a remaining 50.1% stake in Porsche SE's sports car business, Porsche AG. Doing so would be detrimental for both Porsche and VW.

Topics: vw, porsche

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