Porsche is now in the legal hot seat due to its failed attempt to buyout VW shares by misleading investors.
For those who don't know the background story, it goes pretty much like this: Back when Porsche was run by now former CEO Wendelin Wiedeking, the automaker was attempting to buy out its larger German rival, VW. In the process of buying up massive amounts of VW stock, Porsche also accumulated massive debt. When the global financial crisis erupted, Porsche found itself in a bad position and in a boardroom coup shortly thereafter, Wiedeking was fired and VW chief Ferdinand Piech brought the debt-ridden Porsche into his growing brand portfolio.
All told, Wiedeking accumulated debt worth some 10 billion Euros. But now, the consolidation of Porsche into VW is proving more difficult than expected due to various legal issues. According to some German industry reports, VW must either exercise an option to buy out the remaining 50.1 percent of Porsche it doesn't already own or the two automakers will need to formulate a new partnership agreement. VW is insisting that "All parties remain committed to the goal of creating an integrated automotive group," however, new legal action may say so otherwise.
A German regional court representing some 41 banks, insurance companies and investment funds who claim they've experienced significant losses as the result of market manipulation and other illegal actions by Porsche, is currently suing on behalf of their clients to collect more than $1 billion in losses. There's also a U.S. government and Stuttgart regional government investigation taking place for similar reasons. Porsche is fighting all of the allegations and even VW has acknowledged the former's legal problems as the reason for the corporate consolidation delay.
And now that the news of the delayed merger has been made public, Porsche shares have dropped by some 14 percent last Friday, which is the biggest lost since May, 2009. Additionally, prices are down 26 percent for the year to date. In the end, some sort of agreement will likely be made, but it will still be interesting to watch Porsche handle the legal mess they're currently in.