2nd UPDATE: Barclays: Supreme Court Ruling Undermines Lawsuits Against Porsche

Barclays Capital said Friday that a landmark decision by the U.S. supreme court Thursday undermines lawsuits filed by U.S. hedge funds against German automaker Porsche Automobil Holding SE (PAH3.XE).

"We are now incrementally positive on Porsche," Barclays analyst Brian Johnson said.

In a note to clients Monday, Barclays highlighted the risks and possible delay for Porsche's planned merger with Volkswagen AG (VOW.XE) that the U.S. lawsuit posed. "Our analysis was based on the nearly 50 years of case law that would find securities law jurisdiction in the U.S. based on a 'conduct and effects' test," he said.

Johnson said that in Thursday's majority opinion in Morrison vs National Australia Bank authored by Justice Antonin Scalia, "the Court threw out this well established case law by asserting that the Exchange Act was never meant to apply to foreign stocks traded on foreign exchanges, even if they have some U.S. impact or effect, or if part of the alleged fraudulent conduct occurred in the U.S."

During Porsche's ill-fated takeover attempt, Volkswagen shares in October 2008 shot up to more than EUR1,000 apiece as short-sellers scrambled to cover positions after Porsche revealed that it had access to almost the entire free float of VW's outstanding shares. Many investors were wrong-footed by the announcement.

At 1455 GMT, Volkswagen common shares traded down EUR0.53, or 0.7%, at EUR71, while Porsche shares were up EUR0.57, or 1.6%, at EUR35.63. The DAX bluechip index was down 1.1%.

A spokesman for Porsche and a representative of the U.S. funds weren't immediately available for comment.

Last week, Porsche described as "without merit" the lawsuits filed by U.S. investment funds in a New York court alleging market manipulation and securities fraud related to its stake-building at Volkswagen.

On Jan. 25, 17 plaintiffs filed a complaint for damages in the U.S. against Porsche, its former chief executive, Wendelin Wiedeking, and its former chief financial officer, Holger Haerter. The complaint has been expanded to 41 plaintiffs, and the alleged damages are estimated at more than $2 billion.

The funds include Elliott Associates LP, Glenhill Capital LP and Perry Partners LP. The funds are represented by U.S law firm Bartlit Beck Herman Palenchar & Scott LLP and Kleinberg, Kaplan, Wolf & Cohen.

An additional claim for damages was submitted in May to the same court seeking several hundred million dollars.

"The U.S. hedge fund plaintiffs are unlikely to recover on any trades in VW stock made outside the U.S., leaving them potentially only with any claims based on the low-volume (American Depositary Receipts) which were unlikely to approach the $2 billion in damages asserted initially," Johnson said.

Separately, Porsche's disclosure policy during the takeover attempt and related movements of VW's share price have prompted scrutiny from German public prosecutors. That investigation continues.

In Germany several institutional investors have launched legal actions against the automaker, which according to Porsche relate to an alleged loss of profit estimated by the investors to be about EUR2.4 billion. Porsche last week described these claims as being "without merit".

Johnson said that "legal risks remain around suits in Germany," but the "removal of the U.S. securities lawsuit risk is a major step forward and materially improves the attractiveness of Porsche shares."

-By Christoph Rauwald, Dow Jones Newswires; [phone]; [e-mail]