Porsche Automobil Holding SE scored a victory in its battle against investors seeking a total of 5 billion euros ($7 billion) over claims the German carmaker lied during its failed bid to takeover Volkswagen AG (VOW) in 2008.
The Stuttgart Regional Court dismissed a 1.4 billion-euro suit filed by 23 hedge funds including Viking Global Equities LP, Glenhill Capital LP and David Einhorn’s Greenlight Capital Inc. The court in Porsche’s home town rejected the cases, saying that even if the company misled investors, the funds would have lost.
The tribunal is the second in Germany to rule in Porsche’s favor over the issue, after two smaller cases were dismissed in Braunschweig in 2012. Investors claim that Porsche misled them over their intention to bid for VW more than five years ago.
“The scale is gradually moving in Porsche’s favor now,” said Peter Bert, a litigator at Taylor Wessing in Frankfurt. “While formally other courts aren’t bound by the Stuttgart ruling, judges tend to lean towards thinking that their colleagues probably reviewed the case from all angles. It’s an uphill struggle for the hedge funds now.”
Porsche has faced a series of investigations and lawsuits since disclosing in October 2008 that it controlled 74.1 percent of Volkswagen AG, 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 hedge funds claim that Porsche misled investors by denying through much of 2008 that it intended to acquire Wolfsburg, Germany-based Volkswagen.
Judge Carola Wittig said not every piece of “misinformation” entitles a plaintiff to collect damages.
“There was never a guarantee that Porsche wouldn’t change its mind and decide the next day to do the takeover,” Wittig said.
Porsche shares jumped as much as 2.75 euros, or 3.8 percent, to 75 euros and closed 1.3 percent higher in Frankfurt trading.
Porsche spokesman Albrecht Bamler said the ruling was an important victory for the company that indicates how the remaining suits will fare. Matthias Wuehler, a lawyer for the hedge funds, declined to comment.
“The ruling is a positive indication for Porsche, of course,” Frank Schwope, a Hanover-based analyst at NordLB, said by phone. “The other lawsuits are still pending though and every court will decide on its own.”
The hedge funds argue Porsche lied in a March 10, 2008, press release. They also say Porsche’s head of investor relations, Frank Gaube, misled shareholders in phone calls when he denied the company sought a takeover.
Porsche’s release wasn’t informing shareholders about its own stock, for which the rules are much stricter, the judge said.
The funds didn’t show they actually invested because of the information in the March press release, she said. Any losses were at least partly caused by the plaintiffs’ decision to engage in “highly speculative and naked short selling.”
Most of the civil litigation against Porsche is pending in the Regional Court of Braunschweig, which has hearings scheduled for April 30, May 14 and May 21. VW Chairman Ferdinand Piech and Porsche Chairman Wolfgang Porsche have also been sued over the deal in Frankfurt.
Former Chief Executive Officer Wendelin Wiedeking and Holger Haerter, the former chief financial officer, were charged over the issue in 2012 with market manipulation. The Stuttgart court is now reviewing whether the charges may go to trial. Both deny the allegations.
“The criminal case against Porsche’s former leadership may dig out new information that could help boost the suits,” Bert said. “You can still add that in the other cases or in appeals proceedings. The hedge funds can try that bet in time.”
Viking, Glenhill and Greenlight were among funds that sued Porsche in New York state court over the carmaker’s options strategy. In early 2013, the hedge funds agreed not to pursue further appeals in New York and Porsche granted them a 90-day period to sue in Germany instead, leading to the Stuttgart case.
Today’s case is: LG Stuttgart, 28 O 183/13.
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