Lehman Bankruptcy Early Sign of Trouble for Porsche's VW Bid

VW APPROVES PORSCHE MERGER

Wolfgang Porsche, supervisory board chairman of Porsche SE, right, speaks as Wendelin Wiedeking, former chief executive officer of Porsche SE, Michael Macht, chief executive officer of Porsche SE, and Holger Haerter, former chief financial officer of Porsche SE, left to right, listen in Stuttgart, in 2009.

Photographer: Hannelore Foerster/Bloomberg
  • Financing issue played role in bid disclosure, witness says
  • Two ex-Porsche officials on trial for market manipulation

Porsche SE’s failed bid to take over Volkswagen AG in 2008 faced hurdles in the wake of Lehman Brothers Holdings Inc.’s bankruptcy in September of that year, a police investigator told a Stuttgart court Friday.

Four banks that Porsche had asked for a 20 billion-euro ($22 billion) loan to finance the potential bid said that the plan to acquire a 75-percent stake in VW was unrealistic in light of the Lehman crisis, according to the investigator. Mounting debt obligations under the options the sports-car maker used to acquire VW shares also played a role when Porsche finally announced it was considering a bid, she said. 

"Porsche had significant liquidity problems in the week before the statement," said the investigator, who can only be identified as Doerte S. "Financial issues played a role, Porsche knew it wouldn’t get any additional financing."  

Ex-Porsche Chief Financial Officer Holger Haerter and ex-Chief Executive Officer Wendelin Wiedeking are accused of manipulating VW shares with six statements in 2008. Five times they denied they were seeking to acquire VW. The sixth one, issued on Oct. 26 of that year, stated that Porsche controlled 74.1 percent of VW, partly through options, and was seeking the 75 percent stake necessary for a full takeover under German law.

Plan Backfired

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 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.

The Oct. 26, 2008, announcement caused Volkswagen’s stock to jump as short sellers raced to buy shares to repay stock borrowed in bets that VW would fall. The short squeeze led to regulatory probes and lawsuits filed by hedge funds seeking Client about 5 billion euros in German civil courts. Prosecutors claim Porsche should have disclosed its conflicting financial interests in the statement.

VW Shares Fell

The structure of the options was causing problems for the Porsche officials in the weeks before the Oct. 26 announcement as VW shares fell, driving up the cost of the financial instruments, the investigator said.

In the week before the October statement, Maple Bank GmbH, which had provided the options, sought payments of 845 million euros, then 650 million euros and finally another 700 million euros because of the sinking price of VW shares, according to the police officer.

Porsche had to sell stock it held in other companies to raise cash, the investigator said. In mid-2008, Porsche had securities worth 4 billion euros. By October 2008, only about 1 billion euros was left, she said.

Haerter’s lawyers said Porsche had no difficulty meeting those obligations and Maple also had to pay Porsche under the options program.

"You cannot call it liquidity problems, if the payment obligations are actually complied with," said Sven Thomas, one of his attorneys.

The investigator said that whether or not Porsche met the payments deadlines that week, the risks included those the company would face in the near future.

"With the threat that the VW shares would continue to fall, the week ahead would have looked doomed for Porsche," Doerte S. said.

When questioned by Porsche’s lawyer Daniel Krause, the witness said there was no written evidence the company’s managers expected shares would fall the next week. Krause said an e-mail from the period pointed to the opposite conclusion.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE