FRANKFURT Volkswagen AG (VOWG_p.DE) said it would delay a merger with Porsche Automobil Holding SE beyond 2011 because of legal issues and examine other ways of creating an integrated auto group.
Porsche and Volkswagen agreed in 2009 to seal a merger deal by the end of 2011, but signalled in February that the merger faced delays because of investor lawsuits and a criminal investigation of Porsche's former chief executive and its finance head.
On Thursday, Volkswagen acknowledged the merger with Porsche SE could not be completed by the end of the year, a admission that was widely expected by analysts.
"In our view not much has changed," Arndt Ellinghorst, automotive analyst at Credit Suisse said in a note late on Thursday. "VW and Porsche are best advised to extend the current merger framework agreement and add that a merger will be conducted as soon as legal risks have diminished."
The Wolfsburg, Germany-based maker of the Beetle said it would now examine other ways to create "an integrated automotive group" with Porsche and present any findings to the supervisory board before the end of the year.
The main causes of uncertainty are legal actions brought against Porsche SE in Germany and the United States for alleged market manipulation, Volkswagen added.
From Volkswagen's perspective, the legal problems mean it is impossible to quantify the economic risks of a merger and perform a valuation of Porsche SE.
In a separate statement on Thursday, Porsche said the companies could not agree on the valuation of Porsche SE that is required to calculate the exchange ratio.
Porsche also said it still viewed allegations raised in the investigation, as well as damages claims in Germany, to be without merit. Damages claims in the United States were inadmissible and also without merit, it added.
James B. Heaton III, a lawyer with Barlit Beck Herman Palenchar & Scott LLP, who is representing hedge funds suing Porsche, said: "We have no comment except to say that we will continue to press our claims against Porsche in both state and federal court in the United States."
Volkswagen said one factor that influenced its management board was the time needed for the preliminary investigations by the Stuttgart public prosecutors.
The revaluation of put/call rights used to help build up a stake in Porsche is expected to lead to a clearly positive contribution to Volkswagen AG's financial result, the company added.
Porsche tried in 2009 to take over Volkswagen using complex financial derivatives, but abandoned the bid when its debt mounted, eventually forcing it to accept a takeover by its much larger peer, which led to the sacking of its management team.
Investors have sued Porsche in the United States and in Germany, saying they suffered billions in losses when Porsche effectively cornered the market in tradable Volkswagen ordinary shares in 2008.
Investors allege Porsche quietly bought up the shares as part of a plan to take over Volkswagen, while saying publicly it had no plans to do so.
When Porsche revealed its holdings in October 2008, Volkswagen shares soared, briefly making the company the world's biggest by market value. This caused losses for funds that had bet on a decline.
(Additional reporting by Jonathan Stempel; editing by Steve Orlofsky and Andre Grenon)