Bloomberg News (Berlin) - Volkswagen AG (VOW) and Porsche SE failed in their attempts to combine by the end of the year as lawsuits left them unable to determine a valuation, raising doubts over whether a merger of the German automakers will ever take place.
VW will now either have to exercise an option to buy the 50.1 percent of Porsche's auto-making business it doesn't already own, or the two carmakers will need to come up with a new agreement. The original deal required the final merger decisions by the end of 2011.
VW in coming weeks will "analyze whether other potential courses of action exist for achieving the goal of creating an integrated automotive group with Porsche in addition to the put/call options," the Wolfsburg, Germany-based carmaker said in a statement late yesterday. It plans to present the results of those talks to the supervisory board by the end of the year.
Porsche and Volkswagen agreed to combine in 2009 after Porsche racked up more than 10 billion euros ($14 billion) of debt in an unsuccessful attempt to gain control of VW. The planned merger with Porsche's holding company, which owns 50.7 percent of VW's common stock as well as 50.1 percent of Porsche's automotive business, was originally scheduled for completion in the second half of 2011.
"This sheds absolutely no clarity on the timeframe and the merger plan itself," said Juergen Pieper, an analyst at Bankhaus Metzler in Frankfurt. "At the same time, both companies are attractively valued, whether Porsche is integrated or not. The cooperation between the two companies can continue well and good as it is."
U.S. Lawsuits
The statement came after the market closed. VW's preferred shares fell 1.8 euros, or 1.6 percent, to 107.95 euros in Frankfurt trading yesterday, giving it a market value of 47.6 billion euros. Porsche's preferred stock dropped 1 percent to 43.97 euros, valuing the company at 13.3 billion euros.
Porsche is fighting German legal obstacles and a U.S. investigation into share-price manipulation allegations linked to the failed effort to buy VW. Short sellers of VW stock have sued Porsche in the U.S., claiming the carmaker secretly piled up Volkswagen shares and later caused the investors to lose more than $1 billion. At the same time, institutional investors in Germany are seeking 2.5 billion euros in damages over the matter. Porsche has repeatedly denied all the allegations.
"The continuing legal hurdles mean that it is currently impossible to quantify the economic risks of a merger and therefore to perform the valuation of Porsche SE," VW said in the statement. "The main causes of uncertainty are the ongoing proceedings and actions brought against Porsche SE in Germany and the USA for alleged market manipulation."
Profit Impact
As part of the original deal struck in August 2009, VW can pay cash for the remaining stake in Porsche's automobile operations by using the put/call structure that allows the sports-car maker to sell the rest of its core business to VW. Those options could be exercised between November 2012 and January 2015.
VW and Porsche said in separate statements that failure to complete the merger by the end of 2011 will affect the carmakers' results. Volkswagen said a revaluation of the put/call structure will make a "clearly positive contribution" to its third-quarter figures whereas Porsche said it will likely post a "negative group result" for the first nine months.
"All parties remain committed to the goal of creating an integrated automotive group with Porsche and are convinced that this will take place," VW said.
