Porsche-VW merger on track as the biggest risk has been removed

Article by Christian A., on January 6, 2011

After a U.S. judge dismissed a hedge fund lawsuit seeking more than $2 billion in damages, shares in Porsche Automobil Holding SE reached a 52-week high of EUR70.15 on Jan. 4, 2011 before finishing the day down a fraction at EUR68.52. On Jan. 3, 2011, shares rose by 15 percent.

The dismissal of this suit means that a key obstacle to a merger with Volkswagen AG has been removed. Credit Suisse analysts regard this as "positive news" for Porsche SE shareholders.

The suit had delayed attempts by Volkswagen AG to fold Porsche into its operations next year and the decision opens the door for a planned rights issue by Porsche.

DZ Bank analyst Michael Punzet said the ruling paves the way for the planned rights issue at Porsche SE to raise EUR5 billion ($6.7 billion) in the first half of 2011.

U.S. District Judge Harold Baer recently said hedge funds led by Elliott Associates and Black Diamond Offshore Ltd. could not maintain securities fraud claims based on Porsche's tactics when it tried to take over VW in 2008.

The hedge funds alleged they were victimized when Porsche secretly bought a stake of VW ordinary shares using swap instruments as part of a so-called "sneak attack" method plan to take over Europe's largest auto maker. [via autonews - sub. required]

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