Porsche may win VW options case despite 'slyness'

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BERLIN (Bloomberg) -- Porsche SE may win a second victory in a legal battle with investors over its aborted takeover of Volkswagen Group after a judge said its actions were sly but not necessarily illegal.

The Stuttgart-based holding company is fighting German lawsuits seeking a combined 5 billion euros ($6.9 billion) over its aborted takeover of VW.

Judge Stefan Puhle, who presided at a hearing on Wednesday, said the court has doubts about the 213 million euro case brought by HWO, a unit of Merckle Group, over Porsche's public statements.

"What Porsche did was maybe what we call slyness," Puhle said. "But was it also so morally wrong that it leads to legal liability? Slyness is generally highly valued on the markets. It's called cleverness."

The assessment is preliminary and may still change after deliberations, he said.

Porsche is facing market-manipulation allegations after it disclosed in October 2008 that it had access to 74.1 percent of VW, partly through cash-settled options. It has been steadily adding to its win list in the dispute. The company in March won dismissal of a related 1.4 billion euro action by 23 hedge funds in a Stuttgart court.

Last month, Stuttgart judges threw out criminal charges over the issue against former Porsche CEO Wendelin Wiedeking and ex-Chief Financial Officer Holger Haerter. The Braunschweig tribunal already dismissed another two smaller civil cases in 2012.

Bundled claims

HWO bundled its own claims and those by two other Merckle units. The suit claims the companies lost money because its manager at the time, the late Adolf Merckle, relied on Porsche’s repeated 2008 statements that it wasn’t seeking to take over Volkswagen.

The billionaire bet that VW shares would fall and went short on the stock after another statement Porsche issued on Sept. 16, 2004, when the shares were priced just above 200 euros. The stock surged after Porsche said on Oct. 26, 2008, that it had changed its stance and was seeking a majority stake in VW. HWO claims Merckle had to sell on Oct. 28, 2008, when the stock almost reached 1,000 euros.

Two and a half months later, Merckle committed suicide at the age of 74. He had been negotiating emergency financing after his companies were short of cash, partly because of the soured VW bets, and bankers proceeded with a plan to start breaking up his business empire.

HWO lawyer Siegfried Elsing told the court that Porsche was still denying its intention to acquire VW long after it had made up its mind to attempt the takeover. At the time the company finally announced such an intention, the plan was no longer realistic as Porsche couldn’t have financed it because of the financial crisis. The company issued the release to avert a further fall in the stock, whereby the options strategy would backfire, said Elsing.

Heated market

“That’s why Porsche heated up the market,” Elsing said. “They played with the short sellers.”

Judge Puhle said that under German law, not every lie incurs liability beyond disclosure requirements, which aren’t applicable in this situation.

Only a “gross” lie could lead to damage payments and only if potentially every righteous person can agree that the statement was vicious, which may be questionable, he said.

‘Night-prayers’

“It’s likely that some people actually made money after the October release, because they took the opposite bet,” said Puhle. “They probably thanked Wiedeking in their night-prayers for it.”

There are five cases pending in Braunschweig. The court today also heard a second case by a private investor seeking 1.3 million euros. The judges have scheduled a ruling in all Porsche cases pending at the court for July 30.

Two cases seeking 1.8 billion euros and 350 million euros are scheduled to be heard next week. Judge Puhle said on Wednesday that the lawyer in the case, Franz Braun, told the court he no longer represents the plaintiffs. He said the court may have to reschedule the hearings, as new attorneys have to be appointed. The development makes it unlikely that these two suits will be decided on July 30.

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