Porsche SE’s planned merger with Volkswagen AG will probably be delayed into next year because of German legal obstacles. Porsche plunged the most in 19 months.

An investigation into share-price manipulation allegations will likely push the deal’s completion into 2012, Porsche said. Stuttgart prosecutors said today their probe has “solidified” suspicions Porsche didn’t adequately inform the market between 2007 and 2009 about its intentions to take control of VW.

Institutional investors in Germany are seeking 2.5 billion euros ($3.4 billion) from the sports-car maker over the matter, according to Porsche’s annual report. Prosecutors’ findings could be used in German civil suits seeking damages. VW said last year the merger, planned to close in the second half, was also being held up by U.S. lawsuits and German tax disputes.

“Legal proceedings are proving to be more complex,” said Arndt Ellinghorst, a London-based Credit Suisse analyst with “outperform” ratings on VW and Porsche. “It’s very likely that it will happen next year because financial risks will then be more calculable.”

Porsche’s preferred shares dropped as much as 7.20 euros, or 12 percent, to 54.40 euros, the most since July 27, 2009, and were down 9.8 percent at 55.59 euros as of 4:18 p.m. in Frankfurt. VW traded down 1.8 percent.

Expanded Probe

Porsche and VW agreed to combine in August 2009 following a failed attempt by the Stuttgart-based sports-car maker to acquire its larger rival. Investors claim Porsche misled them by denying through much of 2008 it intended to acquire VW. Porsche said in October of that year it controlled most of VW’s common stock, causing the shares to surge as short-sellers raced to cover their positions. Porsche has denied the charges.

Investigators have expanded the scope of their probe into former Porsche Chief Executive Officer Wendelin Wiedeking and former Chief Financial Officer Holger Haerter to include allegations they may have taken risks endangering the carmaker’s existence, the Stuttgart prosecutors said in a statement today.

Prosecutors also extended the probe to include three people from Porsche’s finance unit over allegations they may have made false statements in talks with banks over Porsche’s refinancing and thus may have committed credit fraud, the office said.

“The further investigations are proving to be extremely complex and time consuming and will definitely not be completed before the end of this year,” the prosecutors’ office said.