Volkswagen has defied explanation for a long while. VW’s powerful labor union has made it difficult to deal with, expensive to operate and therefore subject to severe shock in any economic downturn, where it would lack the flexibility to quick reduce its cost structure, and made the prospect of control by Porsche, a minority holder since before 2005, seem unlikely. That in conjunction with 20% ownership in Volkswagen by the state of Lower Saxony, which grants it veto power over any merger, made the auto maker the stuff of short dreams. Porsche had been trying to protect Volkswagen as one of its major suppliers for years, but that was beginning to look like an expensive bet.
Shorts piled on Volkswagen. Something like 12-15% of the common float was borrowed for shorting as recently as last week, a strategy buoyed earlier in the year by Porsche’s insistence that it was not interested in control (or “domination,” in the local parlance. If nothing else, you have to give the German’s credit for getting into the militarism of corporate control).
Then the dam broke. First, there was talk that the law granting Lower Saxony veto power could be struck down by the EU. Then, surprising everyone, Porsche revealed that it held options that would bring their control up to just shy of 75% of Volkswagen. Said the firm:
“The disclosure should give so-called short sellers… the opportunity to settle their relevant positions without rush and without facing major risks.”
A reminder, I suppose, that the German penchant for sly understatement after a Blitzkrieg like stroke remains intact.
Volkswagen shares jump and short-sellers pounce [The International Herald Tribune]
So right now Volkswagen has the biggest market cap on planet earth? Impressive…
is this positive??
for Porsche? Yes!
Exclusive photos of Dick Fuld knocked out:
http://danielwahl.blogspot.com/2008/10/dick-fuld-knocked-flock-out.html
Who’d have guessed it was a girl…
Porsche are operating like a fast money account, fair dues. As well as taking very proftable punts on VW, they are widely known to tap their RCFs with banks and lend out to others at a premium. As for those shorting the common and going long the prefs, this has been going on for years and when West LB got slammed last year (as the spread continued to widen) you would have hoped the hedgies would learn. Short memories i guess. oh, Ich haben ein grossen wurst in mein badenhosen.
ve vill flatten ze shorts.
We’re all friends now, eh?!
http://www.youtube.com/watch?v=vgAi7DYHA94
I’m not that well versed in trading (not a professional or even in the industry), so maybe someone here can clarify this for me.
The stock rises sharply mostly due to (according to media reports) shorts covering the position. Doesn’t that imply that the huge jump in share price will be short-lived? VW won’t stay as the largest company by market cap in the world for long, will it?
So isn’t this a good time for NEW shorts to open up a position in VW, knowing that the boost in share price is likely to be very short lived and will (likely) come back down to earth soon?
8- except that the free float is shrinking and getting a borrow is probably even harder.
Keeping with the German theme, how come Deutsche Bank is flying under the radar so easily? Stock down 80% on the year, 50% in one month. High leverage. Very MS, C ‘ish.
@8 – also, porsche has cash settled options with various european banks. these banks hold the physical shares. if porsche decides to take the shares, instead of the cash, the banks can call in the shares that they have lent out…at a higher price then you sold them short.
Don’t fuck with the Germans, I guess.
@10, because the German government would never in a million years allow DB to go down… though nationalization would of course wipe out equity holders.
well those por3 boys really know how to leverage their position. effectively they take control using their counterparties’ money. good skillz.
Hitler? Who said anything about Hitler?
Germans, those crazy Huns need some loving right now. It’s hard to carry the EU on your back when you have let too many back water third counties into the gang.
I think Greenlight had a large short position on VW. Does anyone else know of HF being hit by this trade?
I think Greenlight had a large short position on VW. Does anyone else know of HF being hit by this trade?
I think Greenlight had a large short position on VW. Does anyone else know of HF being hit by this trade?
I think Greenlight had a large short position on VW. Does anyone else know of HF being hit by this trade?
Nice job in the Fawlty Towers reference.