FRANKFURT, April 8 Volkswagen AG's (VOWG_p.DE)
merger with Porsche (PSHG_p.DE) still faces significant legal
and tax risks, analysts said on Thursday, citing details from
Volkswagen's prospectus for last month's capital increase.
The risks stem from potential tax liabilities and hedge fund
lawsuits alleging former Porsche executives manipulated markets
during the Stuttgart-based company's attempted takeover of VW,
Europe's largest automaker.
These risks could force the companies to delay or abandon a
planned merger of Porsche Automobil Holding SE into Volkswagen
next year, VW said in its prospectus published in late March.
A spokesman for Volkswagen on Thursday said its plans to
merge in 2011 "have not changed".
A spokesman for Porsche says the risks listed in the
prospectus stem from a legal document which lists "every
possible risk" even if the likelihood if these risks
materialising is "limited".
A banker familiar with the matter said it was too early to
say whether Porsche and VW's merger plans needed to be delayed.
Another banker said the level of risks factors listed in the
prospectus was "unusual".
In a note published on Thursday, Bernstein Research analyst
Max Warburton said the risks could force VW to pay cash for a
remaining 50.1 percent stake in Porsche's sports car business.
This, in turn, could be bad for Porsche and VW.
For Volkswagen, a cash deal may mean "significant
indebtedness or the need for a further capital raising",
A cash deal would also probably trigger significant
writedowns related to Porsche, Warburton said.
VW's prospectus says the damages sought by hedge funds for
alleged breaches of capital markets rules could "place a
considerable burden on Porsche's financial resources and
liquidity position, and if substantial in magnitude, could even
lead to the insolvency of Porsche Automobil Holding SE."
In January a group of investment funds sued Porsche SE and
two former top executives accusing them of fraud in a "short
squeeze" that caused the funds to lose more than $1 billion.
Potential liabilities at Porsche SE -- the family-controlled
holding company -- could prevent the planned merger, VW said in
"The merger may not be possible at all, or may only be
carried out at a later date, and the planned target structure of
the integrated automotive company with Porsche may not be
achieved or may only be achieved at a later point," it said.
Porsche SE racked up billions of euros in debt in an attempt
to acquire 75 percent control of VW's votes, leading to the
dismissal of Porsche's two top managers and what in effect is a
reverse takeover by VW.
The first step was selling to VW a 49.9 percent stake in the
Porsche AG sports car business.
For a FACTBOX on the profiles of the two carmakers
For a FACTBOX on the deal between the companies
(Reporting by Edward Taylor and Philipp Halstrick, additional
reporting by Hendrik Sackmann in Stuttgart, +49 69 7565 1187;