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Volkswagen-Porsche Merger Faces Major Hurdles

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On: Mon, Mar 21, 2011 at 4:29PM | By: Chris Weiss

Volkswagen-Porsche Merger Faces Major Hurdles

Things have been going along swimmingly between Porsche and Volkswagen—at least as swimmingly as they can when you play a game of corporate chicken, like Volkswagen and Porsche did for years. Porsche has assumed a new role developing large-sedan and sports-car architecture for the VW Group—a role that it pulled out from under less contentious VW brand Audi—and all appears to be going smoothly toward Volkswagen's goal of becoming the world's largest automaker by 2018.

At least that's what it looks like from the outside looking in. According to a recent Reuters report, Volkswagen's merger with Porsche still faces significant hurdles—hurdles that threaten the future of the merger.

In May of 2009, after more than three years of trying to acquire Volkswagen, Porsche agreed to a merger with VW. Instead of taking control of the robust Volkswagen brand, Porsche moved on to become the 10th brand under the VW umbrella.

But, nearly two years later, the merger is far from complete and faces some major obstacles.

VW CEO Martin Winterkorn told Reuters: "Volkswagen remains totally committed to... the merger with Porsche. However, the tax and legal hurdles still to be overcome on the way are not insubstantial."

Among those hurdles are potential market manipulation charges—and the lawsuits to follow thereafter—that German authorities could bring against Porsche and former CEO Wendelin Wiedeking. Wiedeking was the driving force behind Porsche's failed attempt to take full control of Volkswagen, and in August of 2009, Porsche's headquarters were raided, based on allegations of insider trading. Wiedeking had resigned from Porsche a month earlier by that point, but was the target of the investigation, along with former Porsche CFO Holger Haerter.

Though German authorities dropped part of their investigations in 2010, a separate set of investigations into market manipulation and other financial wrongdoing remains ongoing and isn't expected to wind down until next year, making completion of the VW-Porsche merger unlikely for 2011. The investigations and potential charges could derail the merger altogether.

There are also financial hurdles related stemming from Porsche's significant debt, debt it incurred in buying up VW's stock in its takeover attempt.


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