Porsche SE won dismissal of the first two investor suits in Germany over allegations the company lied about its failed Volkswagen AG takeover plan in 2008. Porsche shares surged the most in nine months after the ruling.
Two press releases issued by Porsche in March 2008 didn’t amount to “vicious behavior” that would have misled investors, the Braunschweig Regional Court said today in a ruling that dismissed the cases. The two lawsuits, which were seeking less than 5 million euros ($6.53 million) combined, argued the 911 sports-car maker manipulated stock prices in its failed bid.
The two lawsuits are among five German cases seeking more than 4 billion euros filed since Porsche disclosed on Oct. 26, 2008, that it controlled 74.1 percent of VW, partly through options, and was seeking to acquire 75 percent and eventually a takeover. The announcement caused VW’s stock to surge as short sellers raced to buy shares borrowed in a bet that VW would fall.
The judges rejected claims that two releases Porsche issued in March 2008 constituted “vicious behavior” because they denied Porsche sought a merger. Even if Porsche was seeking a 75 percent stake in VW “in the long run,” the company can’t be held liable, the court said in a statement posted on its website after today’s ruling.
Porsche surged as much as 9.4 percent to 47.25 euros today, the biggest intra-day gain since Jan. 19, and was up 8.9 percent as of 3:15 p.m. in Frankfurt trading. The stock has climbed 14 percent this year, valuing the German company at 14.4 billion euros.
The Porsche bid for Volkswagen was part of a failed strategy by then-Chief Executive Officer Wendelin Wiedeking that fell apart when the financial crisis dried up the funding to complete the takeover. Volkswagen, Europe’s largest automaker, agreed to buy Porsche’s car business in 2009 when its smaller rival was close to bankruptcy.
The Porsche holding company, which is the largest VW shareholder, still exits as a separate, publicly traded entity.
The rulings “are a positive signal,” said Albrecht Bamler, a Porsche spokesman. “In the three additional cases, which differ in part from those of today, we will also defend ourselves vigorously.” Porsche has denied the allegations.
Franz Braun, the lawyer for one of the plaintiffs in the case, said he was likely to appeal. His client, Swiss trading company MyCapital MC SA, may be able to get additional information to beef up the case, he said.
“In soccer, the score now would be 0-1,” said Braun, who also represents plaintiffs in some of the larger cases. “But the first half hasn’t even been completed.”
While the court didn’t say whether the October 2008 press release also counted as vicious behavior, it said MyCapital didn’t show that its trades were motivated by the statement.
Investors also can’t rely on market-manipulation rules, which don’t allow individual civil suits, the court said.
Today’s verdict may lift some of the legal uncertainty clouding Porsche amid concerns over possible liabilities. The stock plummeted last month after a U.S. court rejected its bid to dismiss a suit over the failed attempt to buy VW.
“It now looks probable that Porsche will ultimately not have to pay anything,” Juergen Pieper, a Frankfurt-based Bankhaus Metzler analyst who recommends buying VW stock. “Analysts expect penalties of between half-a-billion euros and maybe 4 billion euros, and if there is now a sign that things could be less serious or maybe no penalty at all, it’s certainly good news.”
The remaining three German cases are being handled by the same court. Hearings are likely to be scheduled next year in the cases, which seek more than 4 billion euros.
The two companies agreed to combine in 2009 after Stuttgart-based Porsche racked up more than 10 billion euros of debt in its unsuccessful attempt to take over VW. Porsche started accumulating VW shares in 2005.
Another one of today’s plaintiffs, an investor who traded in options on VW shares between April and early October 2008 betting the stock would fall, was seeking 3.1 million euros in damages, accusing Porsche of lying in March 2008 press releases about its plans.
His attorney Christoph von Arnim said he will review the judgment before deciding what next steps to take.
“It won’t add to the trust in the integrity of the markets if the judges don’t find vicious behavior in such a case,” said von Arnim. “It’s intolerable that the judges allow exploiting of loopholes and damaging others to practically go unpunished.”
The investors claim they were misled by Porsche’s March 2008 statements, which denied the company planned to take over VW, after it had already begun buying options to secure control.
A March 10, 2008, release, denying that Porsche sought 75 percent of VW, wasn’t wrong, because at the time there was no company decision taken to acquire such a stake. The release also didn’t “categorically” rule out such a strategy, according to the court.
Seven months later, the option plan risked backfiring when VW shares fell. Porsche issued an October 2008 press release in an effort to push VW’s share price up, the MyCapital suit claimed.
A series of lawsuits in the U.S. and Germany ensued when the options strategy, the brainchild of Wiedeking and Holger Haerter, chief financial officer at the time, faltered in 2009 and nearly bankrupted the carmaker. Stuttgart prosecutors have been investigating the executives since.
The criminal probe “solidified” suspicions Porsche didn’t properly inform the market between 2007 and 2009 about its plan to take control of VW, prosecutors said last year. That investigation is continuing. Haerter and Wiedeking have denied wrongdoing.
As part of the probe, Haerter was charged in March with loan fraud over statements made to a bank when refinancing a 10 billion-euro loan in 2009. At the start of his trial earlier this month, Haerter said he would prove the allegations wrong in court.
Today’s cases are LG Braunschweig, 5 O 1110/11 and 5 O 2894/11.