DealTalk: Porsche merger delay a boon for its owners

The new Porsche Carrera 911 S is presented at the International Motor Show (IAA) in Frankfurt, September 13, 2011.

FRANKFURT (Reuters) - Porsche (PSHG_p.DE) has little choice but to sell its sports car business to Volkswagen (VOWG_p.DE) without a full merger of the parent companies, leaving the families that own Porsche with a tighter grip on the car and truck empire, people familiar with the talks said.

Porsche Automobil Holding SE and the Wolfsburg, Germany-based maker of the Beetle last week said they would not be able to complete the planned merger this year as agreed because of unresolved legal risks.

It had tried in negotiations last week to entice Volkswagen to finish the deal but failed to agree on an exchange ratio for the shares, a person familiar with the talks said.

VW said at the time it would examine other ways to create "an integrated automotive group" and present its findings to the board before the end of the year.

Analysts said VW was likely just trying to buy time by talking about possible alternatives and prevent an even bigger sell-off in Porsche shares that would hurt the Gulf state of Qatar, a key mutual investor of both carmakers.

One existing alternative for a combination is for VW to use put-call options to secure a 51 percent stake in the Porsche AG sports car business valued at 3.9 billion euros ($5.4 billion).

No other alternative for a combination of the companies is in sight, two people familiar with the talks told Reuters.

The strategy of using the put-call options would leave Porsche's owners -- members of the Piech and Porsche clans -- in the driver's seat by averting dilution of their stake in a combined company by a share-based merger.

"From the point of view of VW Supervisory Board Chairman Ferdinand Piech it's best to use the call option," a source close to the deal said.

Porsche's sports car chief earlier this week already said the deal was likely headed for a straightforward sale of his business to VW by use of the options.

Using the options rather than pushing for a merger deal again allows the families to retain a 90 percent stake in Porsche Automobil Holding SE's voting shares.

The holding in turn controls just over half of the voting rights in Volkswagen.

Piech this week said the delay to the merger with Porsche was "not unexpected." His cousin Wolfgang Porsche declined to elaborate on the timing of Porsche and VW merger plans. "We will see," Porsche said, without commenting further.

It could take until 2015 or 2016 for the legal cases to worm their way through the courts, and for shareholders to get clarity over the scale of any potential damages, a person close to Porsche's thinking said.

Porsche ran up crippling debts of some 12 billion euros in a botched attempt to buy VW in early 2009, nearly bankrupting itself in the process. Prosecutors are now building a case against Porsche's former management into breach of fiduciary trust as a result.

The two carmakers have said they could achieve additional annual savings on top of the targeted 700 million euros once they were fully integrated, at which point Porsche would no longer have to operate at arm's length as it does now.

($1 = 0.722 Euros)

(Reporting By Edward Taylor, Hendrik Sackmann, Alexander Huebner and Jan Schwartz; Editing by Jon Loades-Carter)