Volkswagen and Porsche are no strangers to bumps on the road to their reunification. That the planned merger would be held up by the legal liabilities hanging over Porsche as a result of its stakebuilding in VW three years ago was always a strong possibility. Claims by irate investors run to billions of euros. So far, all is indecisiveness: US courts must decide whether they have jurisdiction, and German prosecutors must consider pursuing a criminal case against former Porsche executives. That, in turn, could influence the prospects for successful civil litigation. With no chance of clarity on these questions in the near term, the companies have called off any plans for a deal in 2011. Investors are entitled to be baffled about what happens next.
The neatest outcome would be for the legal challenges to go in Porsche’s favour, with the US declining jurisdiction and Stuttgart prosecutors backing off. But no one wants even to try quantifying the odds on that, and it could be years before the legal liabilities are clear. Alternatively, the two could use a back-up agreement already in place that allows VW to buy the 50.1 per cent stake that it does not own in Porsche AG, the operating sports car business, for €3.9bn. But that may have unattractive tax implications for the next few years.
VW’s statement last week talked of analysing “other potential courses of action” that could lead to an integrated group. But VW gave no details and few believe there will seriously be a Plan C at this stage. In short, odds on a merger anytime soon have declined sharply, even if this remains management’s preferred option. That means that the likelihood that the back-up deal will be enforced has increased. But much more significantly, any action is now further into the future. And even with Porsche shares down 13 per cent last week, it would be a brave investor who bet against that.