Porsche May Win Dismissal of Hedge-Fund Appeal

Feb 26 2015 | 9:54am ET

By Karin Matussek (Bloomberg) -- Porsche Automobil Holding SE shares rose as much as 2.9 percent after a German court said the company was likely to win the first appeal over claims the carmaker lied during its failed 2008 bid to acquire Volkswagen AG.

The Stuttgart Higher Regional Court is inclined to uphold a lower tribunal dismissal of a 1.18 billion-euro ($1.34 billion) suit filed by 19 hedge funds including Viking Global Equities LP and Glenhill Capital LP, Presiding Judge Gerhard Ruf said Thursday. The assessment is preliminary and the judges hearing the case may change their opinion after deliberations, he said.

Porsche has faced a series of investigations and lawsuits since disclosing in October 2008 that it controlled 74.1 percent of Volkswagen, partly through options, and was seeking to acquire 75 percent as part of a takeover strategy. The announcement caused Volkswagen’s stock to jump as short sellers raced to buy shares to repay borrowed stock in bets that VW would fall.

“The lower court delivered a diligently and well-argued ruling,” said Ruf. Porsche’s communications at the time “may have had an intentional double meaning, but they were not so grossly wrong to lead to civil liability.”

Shares Rise

After the decision, Porsche rose as much as 2.9 percent to 84.22 euros and was up 1.7 percent at 1:09 p.m. in Frankfurt trading. The stock has climbed 24 percent this year, valuing the company at 25.6 billion euros.

Porsche faces suits in three German courts with combined claims of about 5 billion euros. A ruling in today’s case was scheduled for March 26.

The funds relied on two press releases in March 2008. On March 3 of that year, Porsche said its supervisory board gave the go-ahead to increase the stake in VW to more than 50 percent. After that led to speculation the company planned to acquire its rival, Porsche put out a release a week later saying it “denies reports in the media which claim that the enterprise intends to increase its stake in VW to 75 percent.”

Even if Porsche’s leadership already planned a takeover, the two statements weren’t plain lies, Ruf said. Whoever seeks 75 percent needs to buy 50 percent first and the March 10 release was merely about speculation, he said. Press releases carry less weight than formal regulatory statements and no one can trust that a situation never changes, he added.

Market Observers

“The plaintiffs’ problem is that their analysts drew the wrong conclusions from the situation,” said Ruf. “Other market observers at the time continued to believe that Porsche sought a takeover.”

Even if the releases were wrong, the funds didn’t show they were the causes for each and every transaction they made that led to their losses, said Ruf.

Markus Grosch, a lawyer for the funds, said the March 10 release was a “crystal clear” lie because it denied takeover intentions.

Porsche’s leadership had “a greed for power and was not only willing to accept that short sellers were damaged, it was what they were aiming at,” said Grosch. “That’s without precedent in Germany’s economy.”

Porsche’s attorney, Markus Meier, argued that the releases were in line with the facts at the time.

The Stuttgart Regional Court on March 17, 2014 rejected the case, saying that even if the company misled investors, the funds would have lost. Originally, 23 funds had sued in Porsche’s home town, seeking 1.3 billion euros. Four of them, including David Einhorn’s Greenlight Capital Inc., accepted the defeat and didn’t appeal. They had a 177 million-euro share of the original amount sought.

More Cases

There are more cases pending against Porsche in courts in Braunschweig and Hanover. The Braunschweig tribunal has scheduled a ruling for March 4. VW Chairman Ferdinand Piech and Porsche Chairman Wolfgang Porsche have also been sued over the deal in the Frankfurt Regional Court, which is scheduled to hear the case in April.

Former Chief Executive Officer Wendelin Wiedeking and Holger Haerter, the former chief financial officer, were charged in 2012 with market manipulation. Both men deny the allegations.

Judge Ruf today said the assessment of his panel of judges doesn’t prejudice the criminal case. The fact that the releases may have been “deliberately ambiguous” could well be relevant in the criminal case where a different standard applies, he said.

Stuttgart prosecutors are also weighing whether to charge members of Porsche’s 2008 supervisory board.

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