Tuesday 4 November 2014

Porsche: The Hedge Fund that Also Made Cars

Amazing story regarding Porsche and Volkswagen, so weird you can't make it up.

As one commenter wrote: "Game of Thrones - German Car Company Edition"

Some snippets:

Volkswagen, from "was widely considered by the financial community to be a pretty crappy company, which is why it was trading at such a low multiple of revenue" to "the most valuable company in the world".

As a result, Volkswagen became one of the most shorted stocks on the market.

This maneuver of secretly buying shares would have been (and still would be) illegal in the United States. In Germany though, where Porsche is based, it was likely legal.

And precisely when Porsche needed banks the most, banks stopped lending money. The words spoken by the company’s CFO years before -- “banks are there for you when you don’t need them, and when you do need them, they’re no where to be seen” -- now seemed prophetic.

The financial markets were baffled by Porsche’s acquisition of Volkswagen shares. Why was a sports car company pouring so much money into a struggling mass-market car company? It seemed to be the equivalent of a company like Hermes announcing it was taking a large stake in Old Navy.

In the blink of an eye, Porsche went from predator to prey. Once on the brink of acquiring Volkswagen, Porsche now found itself borrowing a billion dollars from them just five months later.

“According  to rumour, Ferdinand Piëch likes to run chickens off the road in his Volkswagen Touareg. Whether that is true or not, he certainly tends to ride roughshod over humans, metaphorically at least.”

In 1972, as a married man with five children, Piëch struck up an extra-marital affair with Marlene Porsche -- the wife of his cousin and fellow heir, Gerd Porsche. You can imagine that taking up with your cousin’s wife might make things awkward at Porsche-Piëch family reunions and company board meetings.

So, what is to be learned from the saga of Porsche?

First, if you’re a car company, it’s probably best to focus on making cars instead of gravity-defying financial maneuvers.

Second, capital has a tendency to be there when times are great, but disappears when you need it most.

Finally, if you’re going to go shoot the king, don’t miss.

I wrote before about the hedge fund shorting Volkswagen's shares.

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