Thursday, 24 April 2014

Investors Relations in Germany: Buyer Beware

In 2008, there was a very controversial case involving Porsche and Volkswagen:

Porsche's controversial attempted takeover of Volkswagen (VW) has sparked a feeding frenzy for lawyers on both sides of the Atlantic. The claims and costs are now so onerous they have helped derail Porsche's attempt to take over its larger rival.

While the stakes could barely be any higher, the issue at the centre of the dispute could hardly be simpler – summed up by a press release from March 2008.

Investors claiming these large sums from Porsche say they were misled about its intentions regarding its investment in VW. One of the key elements to the case is a press release put out by Porsche in 2008, in which it dismissed as "speculation" it was mounting a takeover of VW.

By the end of that year the sports car manufacturer shocked the markets by revealing it controlled 42.6pc of VW and had options for another 31.5pc, giving it de facto control.

The revelation caused near panic in the market with VW shares surging to over €1,000 as shortsellers raced to cover their positions by buying back stock – what's known in the market as a "short squeeze".

More information in "Porsche crashes into controversy in the ultimate 'short squeeze'"

Shortly after 3pm on Sunday afternoon, Porsche, the German maker of the iconic 911 sports car, revealed it had secretly bought 31.5pc of VW through a series of cash-settled options with a range of investment banks.

Added to its known holding of 42.6pc, the options handed Porsche control of nearly 75pc of its bigger rival.

The news shot through the global hedge fund industry. With shares in VW trading far above the company's fair value and a recession hitting every other car manufacturer, traders had bet millions of euros that the stock would fall.

But the statement screamed the opposite. With nearly 20pc of the share register held by the state of Lower Saxony and another estimated 6pc held by index trackers, traders calculated a cornered market.

As one said: "With over 100pc of the stock tied up and nearly 13pc shorted, the correct price of any available stock was infinity. It was the ultimate squeeze."

The stock lurched violently, punishing the rest of the DAX index of Germany's leading companies. Hedge funds were estimated to have taken a €30bn hit, with the investment banks sustaining heavy losses, too.

The German regulator belatedly agreed in the face of the turmoil that there could be a case of market manipulation to answer.

Even so, this weekend the reputations not just of Porsche and its advisers, but of regulators and corporate Germany as a whole, are badly damaged.

Sources close to Porsche insist that the company never intended to cause the rumpus and has acted entirely within the rules.

Other observers disagreed. "This is the culmination of long-held plans to take over VW. Porsche engineered the squeeze as one of the most brilliantly conceived wealth transfers ever: they've got the hedge funds positioned to pay for Porsche's acquisition of VW. The only thing they underestimated was the scale of the fallout," said an insider.

The spike in VW's shares made it the most valuable company in the world.

Greenlight Capital is a hedge fund founded by David Einhorn, they were one of the parties involved in shorting Volkswagen.

From their latest quarterly letter more news about the court case:


I find this pretty shocking from a CG point of view, to be honest.

No comments:

Post a Comment