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]