Porsche sued after grab for VW

PORSCHE'S FAILED takeover attempt of Volkswagen had drastic legal repercussions on Monday when four large hedge funds sued the sports car maker and two former executives for more than $1 billion, in what could turn into one of the largest damage claim battles corporate Germany has ever seen, writes DANIEL SCHÄFERin Frankfurt

The hedge funds – Elliott, Glenhill, Glenview and Perry Capital – filed a lawsuit at the New York Southern District Court on Monday, in an attempt to recoup large losses suffered by them after a VW share price surge triggered by Porsche’s takeover attempt of Europe’s largest car maker.

The funds are accusing Porsche and its former chief executive and chief financial officers, Wendelin Wiedeking and Holger Härter, of market manipulation and of disguising their aim to buy more than 75 per cent of VW’s shares in order to take full control over VW.

“The complaint alleges that the defendants repeatedly misled investors and lied about Porsche’s positions and intentions with respect to VW,” the funds said in a press release.

Both Mr Wiedeking and Mr Härter always denied any wrongdoing. “Porsche should be held accountable in a court of law,” said Phil Beck, a lawyer for the funds. “We will do whatever it takes to make sure the rule of law is upheld.”

The lawsuit is expected to be only the first step in a series of damage claims by hedge funds, banks’ proprietary trading desks and large family offices.

People familiar with the plaintiff’s plans said the total volume of future damage claims in Germany and the US by more than 50 claimants could exceed $10 billion.

Institutional investors and wealthy families have often bet on a falling VW share price in the past years, but they were left nursing hefty losses as Porsche slowly built up its positions in the car maker, a move that drove the share price higher.

The producer of the 911 sports car used a special breed of options to secretly raise its stake in VW, leaving capital markets in the dark.

This four-year takeover attempt saw Porsche reporting multi-billion euro profits that at one point even exceeded the sports car maker’s revenues, but it eventually brought Porsche to the verge of bankruptcy last year.

Porsche eventually had to be bailed out in a joint effort by VW, the Emirate of Qatar and its family owners.

Porsche’s tactics caused a spectacular share price surge in October 2008, when the sports car maker revealed that it had acquired much more options for VW’s shares than the market had expected.

As a consequence, VW’s share prices quadrupled as hedge funds and other investors, such as the industrialist Adolf Merckle – who later killed himself – were wrong-footed after betting on a falling share price.

People close to the situation say the family of the late Mr Merckle were among those family offices considering further damage claims.

The share price surge damaged Germany’s capital market reputation and triggered investigations by Bafin, the German financial watchdog.

Prosecutors in Frankfurt and Stuttgart are currently investigating Porsche and its former managers in connection with the takeover.

Porsche declined to comment. - FT service