Ex-Porsche CEO: VW Trial Prosecutors Are ‘Helping Hedge Funds’

Photographer: SeongJoon Cho/Bloomberg
  • Wiedeking denies allegations on first day of criminal case
  • Trial over 2008 failed bid for Volkswagen starts in Stuttgart

Former Porsche SE Chief Executive Officer Wendelin Wiedeking rejected charges he lied about the company’s plan to acquire Volkswagen AG in 2008, telling Stuttgart judges that prosecutors are effectively functioning as agents of hedge funds suing over the failed takeover bid.

Wiedeking addressed the court on the first day of trial Thursday after prosecutors laid out charges he and former Porsche Chief Financial Officer Holger Haerter misled the markets half a dozen times, including withholding details about options used to quietly buy shares before disclosing the bid for what was then the automaker’s larger rival.

Wendelin Wiedeking.
Wendelin Wiedeking.
Photographer: Hannelore Foerster/Bloomberg

The effort, which later collapsed amid the credit crunch of the financial crisis, initially burned hedge funds by driving up the cost of Volkswagen shares, as short sellers increased their positions to repay borrowed stock in bets that VW would fall. Wiedeking said the charges were only designed to help investor lawsuits seeking as much as 5 billion euros ($5.7 billion).

“With these charges, prosecutors are obviously trying to help hedge funds to turn the tides in their unsuccessful civil suits," Wiedeking said. "The idea that there was a hidden plan to take over VW all along is absurd."

Prosecutors claim Wiedeking and Haerter lied when Porsche denied five times in 2008 that it was seeking to acquire VW. They also deceived markets in their surprise Oct. 26, 2008 statement which disclosed that Porsche held 74.1 percent of VW and had now decided to acquire a 75 percent stake and control of the company under German law.

Price Hedges

The two men had decided already seven months earlier to go ahead with the plan to acquire 75 percent of VW, prosecutor Aniello Ambrosio told the court. As early as 2005, Porsche had deals with Maple Bank GmbH to hedge against VW share price movements. In the months after March 2008, Haerter negotiated with several banks about financing the acquisition of a dominant stake in VW, he said.

“The company’s communication strategy was aimed at veiling the intention to acquire VW,”’ Ambrosio said.

Both Wiedeking and Haerter said all five denials mirrored what had been decided at the time. While part of the reason to issue the Oct. 26, 2008, statement was to inform short sellers about the holdings, it was only on that Sunday that the management board, consisting of only the two men, decided to go for the full 75 percent controlling stake. 

"I was on vacation and we made the decision by phone," said Wiedeking. "Now, you may find it strange to make such a decision by phone, but during” the time of the Lehman Brothers Holdings Inc. bankruptcy, “this wasn’t unusual."

Haerter, who also denied the charges, said it was his duty as CFO to gather relevant information for any future steps the company may want to take, including whether banks would finance a takeover at all.

Spectacular Failure

The takeover plan backfired spectacularly in the wake of the financial crisis, drying up loans that Wiedeking and Haerter needed to finance the deal. The takeover bid collapsed and Porsche itself had to be rescued by VW, which bought Porsche’s manufacturing operations, leaving behind only a holding company with the sports-car maker’s legendary name.

Wiedeking and Haerter only announced their intentions on Oct. 26, 2008, because Volkswagen shares had fallen 50 percent over two weeks, complicating their options strategy. Under the deal, Porsche’s payout burden increased as VW shares fell, decreasing its cash from 4.2 billion euros to 326 million euros within days, according to another prosecutor, Heiko Wagenpfeil.

Deceptive Statements

“The statement was deceptive,” said Wagenpfeil. “At the time, Porsche wasn’t able to keep up the strategy anymore."

Both defendants denied the company would have come under financial threats had the VW shares fallen further. Haerter said under the options deals, Maple also eventually had payments due to Porsche so that no collapse would have been imminent at the time.

The trial starts as Volkswagen fights a new scandal over revelations that the automaker cheated on emissions tests. While VW is insulated from the case, the surviving Porsche corporate entity is still its biggest shareholder.

Porsche is an associated party to the Stuttgart case. It could forfeit any financial gains from the alleged actions if Wiedeking and Haerter are found guilty. Criminal market manipulation carries a sentence of as long as five years.

Porsche’s lawyers told the court the they won’t make a separate statement on the charges.

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