Porsche Automobil Holding SE, fighting market manipulation allegations in three countries, may be able to consolidate most of the litigation in Germany after a group of hedge funds dropped a U.S. appeals court case.
Elliott International LP and 11 other hedge funds agreed to drop their suit over Porsche’s failed takeover bid for Volkswagen AG at the U.S. Court of Appeals in New York, according to a court filing yesterday. The funds will instead focus on a parallel German suit seeking 1.8 billion euros ($2.3 billion).
The legal wrangling, stemming from Porsche’s bid for VW more than four years ago, ultimately scuttled a planned merger between the two companies last year. Investors claim Porsche failed to inform the markets about its takeover plan. Elliott International has filed one of four cases seeking more than 4 billion euros combined at a court in Braunschweig, Germany.
“The litigation now more and more concentrates on Germany, and that’s good for Porsche”, said Juergen Pieper, an analyst at Bankhaus Metzler, who rates the company’s shares “buy”. “But this isn’t the end of the case, it’s continuing in Germany, so the story isn’t over yet.”
The Stuttgart, Germany-based holding company said in a statement that it consented to the hedge funds’ move, which must be approved by the U.S. court. Porsche gained 2.40 euros, or 3.9 percent, to 64.30 euros as of 12:51 p.m. in Frankfurt trading.
The decision in the Elliott International case doesn’t end the U.S. litigation. Twenty other funds are continuing a separate case in the U.S. federal court. Porsche said the claims don’t have merit.
The hedge funds claim that Porsche misled investors by denying through much of 2008 that it intended to acquire the Wolfsburg, Germany-based carmaker. Two smaller cases were rejected by the Braunschweig court in September.
Last month, a separate group of 26 hedge funds suing Porsche in New York state court, including David Einhorn’s Greenlight Capital Inc., agreed not to pursue further appeals. Porsche granted them a 90-day period to sue in Germany instead.
No new suits have been filed in Braunschweig, Maike Block-Cavallaro, a spokeswoman for the tribunal, said in an interview today. The Braunschweig court has scheduled a hearing in existing litigation for April 17.
Porsche said it’s unclear to what extent Elliot and the 11 funds were seeking damages for the same violations in their U.S. case and their German case.
Porsche is trying to avert similar litigation in the U.K., where by Cayman Islands-based investment fund Pendragon (Master) Fund Ltd., is seeking $195 million.
German prosecutors are also continuing a criminal probe into the issue. Former Chief Executive Officer Wendelin Wiedeking and ex-Chief Financial Officer Holger Haerter were charged with market manipulation in December and prosecutors have extended their investigation to include 2008 members of Porsche’s supervisory board.
In U.S. federal court, District Judge Harold Baer in New York in December 2010 dismissed the lawsuit by Elliott and Black Diamond Offshore, representing a total of 39 U.S. and foreign-based funds.
Baer said in his ruling that he relied on a U.S. Supreme Court judgment that fraud claims such as those in the lawsuits against Porsche apply only to securities listed on domestic exchanges and domestic transactions in other securities. Baer said his ruling applied to similar complaints against Porsche.
The U.S. appeals case is Viking Global Equities LP v. Porsche Automobil Holding SE, 11-00397, U.S. Court of Appeals for the Second Circuit (Manhattan).