CEO sees 30 percent chance Porsche merger will fail: report

FRANKFURT (BestGrowthStock) – There is a 30 percent chance investors holding preferred shares in Porsche SE (PSHG_p.DE: ) may not be able to swap their stock for equity in cash-rich Volkswagen (VOWG_p.DE: ), the companies’ top manager said in comments published in newspaper Automobilwoche.

The chief executive of both companies told the German industry newspaper that the probability of a merger under the leadership of VW has diminished as potential legal and tax liabilities have grown in recent months.

“The chances are 70 to 30 that it comes to that,” Martin Winterkorn said in the comments published on Saturday. “Our lawyers are involved in a close examination (of these risks).”

The finance chief of both companies, Hans Dieter Poetsch, told a conference call on Wednesday that Volkswagen assigned a 30 percent probability the merger would not go through in order to account for the value of financial derivatives linked to Porsche’s sports car business under IFRS.

Volkswagen has a put-call option in place that allows it to acquire the remaining 50.1 percent of Porsche’s sports cars activities for a strike price of 3.9 billion euros ($5.41 billion) independent of any merger, but the purchase could involve tax risks as well should the option be exercised before the end of 2014.

Winterkorn and Poetsch said earlier this month that legal and tax issues could delay the deal beyond the end of next year, when the merger contract expires.

Porsche management had launched a risky takeover of Volkswagen, which nearly bankrupted Porsche last year after it could no longer afford to prop up the elaborate structure of VW derivative positions used to build its stake.

Porsche SE was forced to sell its sports car business to VW in stages and it offloaded its cash-settled call options on VW stock to the Gulf state of Qatar for a heavy loss in July 2009.

(Reporting by Christiaan Hetzner; editing by Sue Thomas)

CEO sees 30 percent chance Porsche merger will fail: report