The hedge funds looking to recoup the losses incurred during the tumultuous failed takeover of Volkswagen (VW) by Porsche have opened up another legal front.
IHS Automotive perspective | |
Significance | The seven hedge funds that are sueing Porsche SE in the German courts over the company's failed takeover of VW have opened up a new front in the legal war by filing personal suits against the holding company's chairman, Wolfgang Porsche, and his cousin and fellow board member, Ferdinand Piëch. |
Implications | Wolfgang Porsche was the prime mover, along with then-Porsche CEO Wendelin Wiedeking and CFO Holger Haerter, in the hostile takoever bid for VW by Porsche. However, in his position as supervisory board chairman of VW, Piëch bitterly opposed the move. |
Outlook | The hedge funds have obviously been advised by their legal teams that they have the best chance of maximising potential damages and exerting extra pressure in their fight for compensation by bringing personal suits against Piëch and Porsche. However, the case against Piëch is less clear and it seems that the hedge funds may look to allege a conflict of interest between his roles on the Porsche SE board and the VW supervisory board. |
A new front in the legal battle has begun between the hedge funds that lost hundreds of millions by hedging VW shares in the failed takeover of Europe's largest carmaker by Porsche, and the latter's holding company, Porsche SE. According to a Porsche SE company press release, the seven hedge funds that are already bringing civil lawsuits against Porsche SE in the German courts in an effort to claim damages for losses incurred during the failed VW takeover are now also bringing personal suits against Porsche SE's supervisory board chairman, Wolfgang Porsche, and fellow board member Ferdinand Piëch.
The statement said, "Porsche Automobil Holding SE (Porsche SE) believes that the suit filed by seven hedge funds against the chairman of the supervisory board, Dr. Wolfgang Porsche, and one other supervisory board member, Prof. Dr. Ferdinand Piëch, is without merit. The hedge funds, that already filed suit against Porsche SE before the Regional Court of Hanover (Landgericht Hannover), have initiated a civil action against the two supervisory board members at the Regional Court of Frankfurt am Main (Landgericht Frankfurt am Main). The plaintiffs argue that both supervisory board members participated in reaching all the decisions that Porsche SE made in connection with increasing its stake in Volkswagen between 2005 and 2008. Porsche SE is of the opinion that the "new" civil action solely functions as a trial tactic and aims to put pressure on it. Neither these supervisory board members nor Porsche SE will be intimidated by this. Porsche SE has joined the proceeding in support of the defendants."
Outlook and implications
The decision to bring multi-pronged lawsuits againgt Porsche SE, and personal suits against Wolfgang Porsche and Ferdiand Piëch appear to be an attempt by the plaintiffs to exert as much leverage as possible in their battle for compensation for the losses sustained during October 2008's "short squeeze", in which the hedge funds lost hundreds of millions of euros when Porsche SE revealed the true position it had built in VW shares through cash-settled share options. Porsche had effectively cornered the market in VW shares with control of 74.1% of the total share float. This left the funds, which had "shorted" the shares in a gamble that they would fall in value, scrabbling for a small float of just over 5% of the company's shares that were still available on the open market, leading to a huge spike, with share values momentarily peaking at EUR1,005 and making VW, for a brief moment, the world's second most valuable company in the world in terms of market cap. The hedge funds have always contended that the behaviour of Porsche SE in making the purchases of cash-settled options went against public statements regarding the future strategy for the VW takeover. However, Porsche SE countered this accusation in its latest statement, saying, "Porsche SE confirms that all press releases the company published during the period in dispute are truthful and believes that this suit is also without merit."
The legal teams of the hedge funds are looking to maximise their opportunities to put pressure on Porsche SE and the patriarchs at the centre of what is probably the most controversial event in corporate Germany in the past decade. It is likely that the civil suits against Porsche and Piëch will focus on how the two men discharged their responsibilities as board members overseeing the activities of the executive Porsche board of that time, which included Wiedeking and Haerter, while they may also seek to prove a conflict of interest between Piëch's role as a Porsche SE board member and as VW's supervisory board chairman. The hedge funds also ironically appear to be hedging their legal strategy by having the case against Porsche SE and that against Wolfgang Porsche and Piëch heard in different regional jurisdictions. Given the complexity of the case and the expensive team of highly-skilled lawyers acting for both sides, it appears that a simple and rapid resolution to this dispute is unlikely.