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Porsche Sued by Viking Global Investors in Volkswagen Takeover Dispute

Date: Monday, October 25, 2010
Author: Joel Rosenblatt and Bob Van Voris, Bloomberg

Porsche SE was sued by Viking Global Investors over claims the automaker’s attempted takeover of Volkswagen AG was an illegal stock fraud scheme that cost the hedge fund at least $390 million.

The complaint against Porsche, filed today in federal court in Manhattan, follows a similar lawsuit by U.S.-based short sellers of VW stock who claim the sports-car maker secretly cornered the market in VW shares in 2008 and later cost them more than $1 billion in losses.

Viking took short positions on VW shares believing the stock was overpriced, and relying on Porsche’s public assurances in 2008 that it didn’t own or intend to acquire a controlling interest in VW, according to the suit.

“Unbeknownst to Viking or the market, at least as early as March 2008, Porsche was taking steps to corner the market in VW shares as part of an effort to secretly take control of VW,” the New York-based fund claims in the suit. “Through careful market manipulation and false statements, Porsche convinced investors to believe that the VW shares were overvalued, inducing them to enter into short sales of VW shares.”

Due to Porsche’s “stranglehold” on the VW shares, short sellers lost about $38.1 billion in less than one week and Viking lost at least $390 million in two days, according to the complaint.

Heiner von der Laden, a Porsche spokesman, wasn’t immediately available for comment after business hours.

Merger Steps

Volkswagen, based in Wolfsburg, Germany, and Europe’s largest carmaker, agreed to join with Porsche in August 2009 after the 911 sports-car maker’s debt tripled to more than 10 billion euros ($14 billion) following its failed bid to buy VW by securing stock through options trading. VW has since bought 49.9 percent of Porsche’s operating unit for 3.9 billion euros, setting the stage for a merger in 2011.

A previous suit against Porsche, based in Stuttgart, Germany, was filed in January by Elliott Associates LP, Glenhill Capital LP, Glenview Capital Partners LP and other short sellers.

VW’s merger with Porsche is also being hampered by negotiations with German tax authorities over the tax-exempt status of profits from Porsche’s options transactions.

The case is Viking Global Equities LP v. Porsche Automobil Holdings SE, 10-08073, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net