VW To Review Alternatives To Initial Porsche Merger Plan

Volkswagen AG (VOW.XE, VLKAY) confirmed Monday that it still aims to forge a combined company with Porsche Automobil Holding SE (PAH3.XE, POAHY), despite last week's announcement that the initial merger plan has to be reviewed due to financial risks related to Porsche's legal issues in the U.S. and Germany amid alleged market manipulation.

Volkswagen chief financial officer Hans-Dieter Poetsch confirmed at the sidelines of an evening event ahead of the Frankfurt motor show that Europe's largest auto maker is looking into the already agreed options to take over Porsche's sports-car unit as well as "possible alternatives." He said Volkswagen hasn't identified possible alternatives yet and it was "too early to say how they might look like." "We need some more patience," he said.

In August 2009, Volkswagen and Porsche decided to forge a joint company after a fierce power struggle, which triggered the departure of Porsche's former management. Following the agreement, Volkswagen took a 49.9% stake in Porsche's core sports-car unit and acquired options to take over the remaining 50.1% stake at a later stage if the merger doesn't work out as planned. Porsche's holding company would then remain a separate entity for the time being.

Poetsch reiterated that the merger with the holding firm would have been the preferred scenario, noting that exercising the option to take over the sports-car business before the second half of 2014 would trigger a significant tax burden. He said Volkswagen could look into whether or not the anticipated cost synergies through a closer tie-up would justify facing a higher tax bill.

Last week, Volkswagen said its management board will look into alternative ways to create a combined company and expects to present these to the firm's supervisory board by the end of this year.

Several U.S. hedge funds have filed lawsuits at a New York court over alleged market manipulation at Porsche when the Stuttgart-based firm built its 51% stake in Volkswagen and acquired complex stock options at the time to take over full control of its much-larger peer.

Porsche's bold move, however, backfired when credit markets dried up during the financial crisis and the company had to agree to a tie-up under Volkswagen's leadership.

German public prosecutors are looking into allegations of market manipulation as well. Investigations continue and it is uncertain when these legal issues can be resolved.

The setback for the initial merger plan comes at a time when Volkswagen is setting out on an ambitious global expansion plan, which apart from tightening the bond with Porsche includes forging a European truck alliance and entering a small-car cooperation with Japan's Suzuki Motor Corp. (7269.TO).

Regulatory approval for Volkswagen's planned takeover of German truck maker MAN SE (MAN.XE, MAGOY) is still pending. Separately, the cooperation with Suzuki appears to be close to collapse after a dispute between the two firms about strategic issues escalated in recent days.

-By Christoph Rauwald, Dow Jones Newswires;

+49 69 29 725 512; christoph.rauwald@dowjones.com

Porsche Automobile (PK) (USOTC:POAHY)
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