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Volkswagen Delays Merger With Porsche due to Legal and Tax Issues

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On: Tue, Oct 19, 2010 at 2:57PM | By: Sherry Christiansen

Volkswagen Delays Merger With Porsche due to Legal and Tax Issues

Volkswagen may decide to put a merger with Porsche Automobile Holding SE on the shelf until legal disputes and tax issues can be resolved, according to VW CEO Martin Winterkorn. “The legal proceedings may drag on for some time to come until a final decision is reached. For that reason, the planned merger could possibly be delayed,” Winterkorn, also CEO of Porsche's holding company, said Tuesday. “We're still facing a tax-related hurdle and several legal obstacles.”

The VW originally agreed to the merger with Porsche in 2009 as a result of the sports car maker racking up debt, to the tune of $14 billion. VW has since purchased 49.9% of Porsche AG, for 3.9 billion Euros which “set the stage for a merger in 2011,” according to automotive news.com. The lawsuits involve claims against Porsche by U.S. short sellers of VW stock who say that Porsche cost VW over $1 billion in losses after “secretly cornering the market on VW shares.”

The lawsuit was filed in Manhattan federal court by Elliott Associates and Glenview Capital Partners; whether the case will go forward is projected to be decided in January.

The other issue hindering the merger is the tax exempt status of profits from Porsche. The merger would cause VW to be subjected to higher taxes should the companies merge before 2014.

“The management board of Porsche SE currently assumes that a successful resolution of the risk factors is possible and that the merger will therefore materialize,” said VW CFO Hans Dieter Poetsch, who also sits on the Porsche board. “However, it may possibly not be in line with the ambitious timetable set out in the framework agreement.”

Porche SE plans to ask its shareholders to approve issuing 1.25 billion new shares in order to raise up to $7 billion in capital between January and June 2011.

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