Porsche Hedge Funds Suit Has High Risk of Loss, Judge Says

Porsche Automobil Holding SE, facing lawsuits seeking a combined 5 billion euros ($6.8 billion) over its aborted takeover of Volkswagen AG, may win dismissal of one of the cases in Germany.

Arguments by the plaintiffs, 23 hedge funds including Viking Global Equities LP, Glenhill Capital LP and David Einhorn’s Greenlight Capital Inc., haven’t convinced the court so far in the 1.4-billion euros lawsuit, Presiding Judge Carola Wittig said at a hearing in Stuttgart today. The court’s assessment is preliminary and may still change after hearing more arguments, she said.

“We see high risks for the plaintiffs that they will lose their case, even if we take for granted all the events took place as the plaintiffs claim they did,” Wittig said. “That’s even true if we assume that Porsche’s leadership already had the plan to take over VW in early 2008.”

The judge’s comments are one of the first indications from the German courts on how the investors may fare in the claims. The lawsuits, which stem from Porsche’s bid for VW more than four years ago, ultimately scuttled a merger between the two companies in 2012. Investors claim Porsche, based in Stuttgart, failed to inform the markets about its takeover plan.

The court will rule on the case on March 17. Porsche shares rose 2.50 euros, or 3.4 percent, to 76.40 at the close of trading today in Frankfurt.

Market Speculation

The hedge funds claim that Porsche misled investors by denying through much of 2008 that it intended to acquire Wolfsburg, Germany-based Volkswagen. In addition to the case in Stuttgart, Porsche faces lawsuits in Braunschweig and Hanover. VW Chairman Ferdinand Piech and Porsche Chairman Wolfgang Porsche were also sued over the deal in a Frankfurt court.

The hedge funds argue Porsche lied in a March 10, 2008, press release. They also say Porsche’s head of investor relations, Frank Gaube, lied in phone calls at the time when he denied the company sought a takeover.

Wittig questioned whether statements in a press release were enough to hold a company liable. German law doesn’t generally require someone who seeks to buy a company to make that public, the judge said.

The March 2008 statement was meant to curb market speculation about a takeover at the time, she said. Had Porsche stayed silent, the markets would have taken that as a confirmation, according to the judge.

‘Conspiracy Theory’

Marcus Grosch, a lawyer for the funds, said if Porsche wanted to counter speculations by issuing a press release, it was required to tell the truth.

“A company which seeks to counter speculations has no right to lie to reach that goal,” Grosch said. “If there was a plan to take over at the time, Porsche needed to say so or remain silent.”

Markus Meier, a lawyer for Porsche, asked the court to dismiss the case. In early 2008, the company didn’t plan to fully purchase Volkswagen, he said. The funds are making up a “sort of conspiracy theory,” Meier said.

The three judges on the panel will have to assess whether the statements in the release and in calls to investors are enough to constitute vicious behavior, a requirement for a plaintiff to collect damages, Wittig said.

New York Suit

“We will deliberate on all arguments heard today thoroughly before ruling on whether Porsche can be held liable,” she said. “Only if we come to that conclusion will we have to look at the questions of what damage the actions actually caused.”

Most of the civil litigation against Porsche is pending in the Regional Court of Braunschweig, which rejected two lawsuits in 2012 brought by individual investors claiming market manipulation. The court has hearings scheduled for April 30, May 14 and May 21 in the remaining cases.

In German lawsuits, courts generally indicate at the first main hearing how it sees a plaintiff’s chances of winning. While in the majority of cases the court rules the way it predicted, sometimes parties manage to persuade judges with new legal arguments or evidence.

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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