Porsche ‘Slyness’ No Bar to Chances in VW Options Case

Porsche Automobil Holding SE, fighting German lawsuits seeking a combined 5 billion euros ($6.9 billion) over its aborted takeover of Volkswagen AG, may score its second victory in the battle this year.

The court has doubts about the 213 million-euro case brought by HWO GmbH, a unit of Merckle Group, over Porsche’s public statements, Presiding Judge Stefan Puhle said at hearing today. The judges’ assessment is preliminary and may still change after deliberations, he said.

“What Porsche did was maybe what we call slyness,” Puhle said. “But was it also so morally wrong that it leads to legal liability? Slyness is generally highly valued on the markets. It’s called cleverness.”

Porsche, facing market-manipulation allegations ever since it disclosed in October 2008 it had access to 74.1 percent of VW, partly through cash-settled options, has been steadily adding to its win list in the dispute. The company in March won dismissal of a related 1.4 billion-euro action by 23 hedge funds in a Stuttgart court.

Last month, Stuttgart judges threw out criminal charges over the issue against former Porsche Chief Executive Officer Wendelin Wiedeking and ex-Chief Financial Officer Holger Haerter. The Braunschweig tribunal already dismissed another two smaller civil cases in 2012.

Bundled Claims

HWO bundled its owns claims and those by two other Merckle units. The suit claims the companies lost money because its manager at the time, the late Adolf Merckle, relied on Porsche’s repeated 2008 statements that it wasn’t seeking a take over of Wolfsburg, Germany-based Volkswagen.

The billionaire bet that VW shares would fall and went short on the stock after another statement Porsche issued on Sept. 16, 2004, when the shares were priced just above 200 euros. The stock surged after Porsche said on Oct. 26, 2008, that it had changed its stance and was seeking a majority stake in VW. HWO claims Merckle had to sell on Oct. 28, 2008, when the stock almost reached 1,000 euros.

Two and a half months later, Merckle committed suicide at the age of 74. He had been negotiating emergency financing after his companies were short of cash, partly because of the soured VW bets, and bankers proceeded with a plan to start breaking up his business empire.

HWO lawyer Siegfried Elsing told the court that Porsche was still denying its intention to acquire VW long after it had made up its mind to attempt the take over. At the time the company finally announced such an intention, the plan was no longer realistic as Porsche couldn’t have financed it because of the financial crisis. The company issued the release to avert a further fall in the stock, whereby the options strategy would backfire, said Elsing.

Heated Market

“That’s why Porsche heated up the market,” Elsing said. “They played with the short sellers.”

Judge Puhle said that under German law, not every lie incurs liability beyond disclosure requirements, which aren’t applicable in this situation.

Only a “gross” lie could lead to damage payments and only if potentially every righteous person can agree that the statement was vicious, which may be questionable, he said.

‘Night-Prayers’

“It’s likely that some people actually made money after the October release, because they took the opposite bet,” said Puhle. “They probably thanked Wiedeking in their night-prayers for it.”

There are five cases pending in Braunschweig. The court today also heard a second case by a private investor seeking 1.3 million euros. The judges have scheduled a ruling in all Porsche cases pending at the court for July 30.

Two cases seeking 1.8 billion euros and 350 millions euros are scheduled to be heard next week. Judge Puhle said today that the lawyer in the case, Franz Braun, told the court he no longer represents the plaintiffs. He said the court may have to reschedule the hearings, as new attorneys have to be appointed. The development makes it unlikely that these two suits will be decided on July 30.

Today’s cases are: LG Braunschweig, 5 O 2068/12 and 5 O 2433/12.

To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net Peter Chapman, Jones Hayden

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