BBC NEWS | Business | VW becomes world's biggest firm

I don't have much sympathy for all those hedge funds who lost billiions because they bet that VW's share price would go down. (It didn't - Porsche bought a whole bunch of shares in VW). I'll maybe revise my view if it turns out that my pension is in one of those hedge funds though.

Here's another thing though - how come Porsche (which surely doesn't sell that many cars, even if they are all expensive ones) is big enough to buy 74% of VW?:confused:

I heard this this morning and absolubtly p*ssed myself.

It's probably screwed all our pension funds though.

Porse sells a few high margin cars, this has over the years given them enough money to buy up a stake in VW. They don't want anyone else owning VW as they use a lot of VW parts.

VW and BMW will rule the world, everyone else will fail.

Yes, I know it's not a BMW forum here but I've always liked beemers, even though I'm never going to own one

Porsche have had a hand in VW since VW's conception, now they've just got a bigger slice.

Well it's popular news over here at the moment, a big debate on german TV last night and the old Eric's are feeling pretty chuffed with themselves at the moment.

I wouldnt be so sure, VW's price dropped by as much as 56% this morning

BBC NEWS | The Reporters | Robert Peston

I wouldnt be so sure, VW's price dropped by as much as 56% this morning

Might well have done however since yesterday it went from about 200 to 1000 inside of the day that still leaves it 150% higher than before this all started.

Point being...

Peston always puts a negative spin on everything as if the end of the world is nigh.

Sorry, when i read the thread title,

i thought Ian (hedge) had bought a VW to replace his stolen VRS

Hedge funds effectively gamble on companies with other people's money. They are not liked in a lot of European countries because they often have a harmful effect on the companies that they buy into (the more the share price drops, the more money they make).

I wouldn't worry too much about pension funds, they put some money into hedge funds, but not a lot. Anyway, these geniuses come from the same place as all those other guys that lost billions out of the pension funds over the last couple of months.

Here's another thing though - how come Porsche (which surely doesn't sell that many cars, even if they are all expensive ones) is big enough to buy 74% of VW?:confused:

Well, Porsche have been making the 911 since the beginning of time and seeing as ongoing development costs cannot have amounted to more than 25DM in that time and they sell each one for about £$Euro 70,000 there is plenty of profit in every 911.

VW develop new cars all the time and sell them for about £$Euro 15,000, hence they don't have so much money.

Porsche will now technically own Skoda, so that should make us all feel better. Perhaps someone could come up with a "Porsche" badge that could blend in nicely with the Skoda one.

(I detect a group buy coming up!)

I wonder what car many of those hedge fund managers etc drive.......

Fast bucks: how Porsche made billions

By Emily Hughes

BBC Money Programme

Porsche is world famous for its iconic sports cars.

But car manufacturing isn't the only thing the company is good at.

Last year it made six times as much on the stock market as it did making cars.

Industry insiders are only half joking when they call it a hedge fund with a carmaker attached.

Porsche says its stock market trades are only for one reason: to take it towards its long term goal, the takeover of car making giant, Volkswagen.

In October 2008, Porsche's takeover moves triggered an unprecedented stock market squeeze when it suddenly revealed it owned or had positions on more than 74% of Volkswagen shares.

The value of Volkswagen stock rocketed to more than 1,000 euros, briefly making it the most valuable company in the world.

Hedge funds, who had gambled that the value of Volkswagen shares would fall are said to have lost between 10bn and 40bn euros.

Porsche denies any wrongdoing and says that it made no profit from the squeeze, but some hedge funds are crying foul.

Now the German financial regulator, BaFin, is conducting an investigation into what it calls "suspected market abuse."

The back story

The stories of Porsche and Volkswagen have long been intertwined.

Ferdinand Porsche designed the iconic Volkswagen Beetle in the 1930s, a car that became an emblem of Germany's economic success throughout the world.

He then founded his own company, which became famous for making superfast sports cars.

The Porsche family still owns the company their grandfather founded and now wants to own Volkswagen itself, a company 14 times the size of Porsche.

Volkswagen owns some of the biggest names in European motoring; Seat, Audi, Lamborghini, Bugatti and Bentley.

The personalities

The recession of the early 1990s hit Porsche hard and some questioned if the company would survive.

Then, in 1993, Wendelin Wiedeking was appointed chief executive.

Together with chief financial officer Holger Haerter they are credited with turning the company around.

"Wiedeking took the decisions, the risky decisions, to come up with new models," says Arndt Ellinghorst, head of European automotive research at Credit Suisse.

They also slashed production costs, but most importantly, Mr Haerter used Porsche's cash to enter the financial markets.

He had little experience of car making, but he did bring expertise in investment management.

Through currency hedging he developed a mastery of the markets that he eventually turned towards Porsche's end goal; the take over of Volkswagen.

"Porsche does not have the research and development budget to come up with really the key innovations of the industry," says Mr Ellinghorst.

A takeover of Volkswagen would mean access to its huge production facilities, its technology and,most importantly, its cash.

VW Law

In 2005, Porsche quietly started to increase its stake in Volkswagen.

By September 2008 it had acquired 35.14% of Volkswagen shares.

Whilst Porsche stated publicly its long term goal was a takeover, insiders knew this goal was stymied by a peculiar anomaly: the VW Law.

The VW Law essentially protects Volkswagen from hostile take over.

It means that an 80% majority is needed to make "significant decisions" at annual meetings.

This gives the local state government of Lower Saxony, owning 20.1% of the shares, a blocking majority.

Porsche needs to overturn this law before it can reach its ambitious goal.

It is applying the pressure on both the EU and the German government to do this.

While the VW Law is still in place there is consensus among market insiders that there is little point in Porsche increasing its stake in Volkswagen, but sometimes things are not quite what they seem.

Short selling

By July 2008 the credit crunch was hitting the car industry hard and car company share values were plummeting around the world.

But Volkswagen's were remaining stubbornly high.

Hedge fund managers calculated that Volkswagen shares could not remain so high indefinitely and believed there was an opportunity to make some cash by short selling the shares - borrowing Volkswagen shares off a third party in the expectation that the price would fall so they would be able to buy them back cheaper, later and pocketing the difference.

Volkswagen shares became some of the most "shorted" stocks in Europe.

But despite the downturn, by the end of the summer it was clear there was something peculiar about Volkswagen shares.

The price was not dropping and the reason was about to be revealed.

The bombshell

On Sunday 26 October 2008, Porsche dropped a bombshell.

It announced it had increased its stake in Volkswagen to 42.6% and held cash settled options on a further 31.5% - meaning it had positions on up to 74.1% of all Volkswagen shares.

It seemed it had effectively cornered the market and short sellers who needed to buy back shares to close their positions were forced to fight over the remaining available stock.

How did it happen?

Porsche was able to build its secret holding by using financial instruments called cash settled call options.

Call options essentially give the buyer the option to buy shares at a competitive price at a future fixed date.

A cash settled call option enables the buyer to either take delivery of the share, or the difference between the strike price agreed when the option was bought and the market price when deal is settled.

The buyer can then use this money to purchase the share on the open market.

Porsche proved to be masters at this type of transaction, which, as long as it got the bets right and Volkswagen prices continued to rise, let it buy Volkswagen shares at favourable prices.

In the UK, any increase in share holdings to more than a 30% stake in a company has to be disclosed, whether you do it through cash settled call options or not.

This is not the case in Germany and this enabled Porsche to build up its position in secret.

Winners and Losers

Investors who were caught short have questioned Porsche's behaviour and the timing of its announcement of its secret positions in Volkswagen shares.

This is now being investigated by the German regulator, BaFin.

Porsche deny all wrongdoing and says its strategy was driven by its goal of taking over Volkswagen, not the wish to make profits from financial speculation.

It says it has invested the profits it made from the squeeze into purchasing more Volkswagen shares outright.

Fast Bucks: How Porsche made Billions, 19.30 Thursday 22 January 2009.

Story from BBC NEWS:

BBC NEWS | Business | Fast bucks: how Porsche made billions

Published: 2009/01/22 07:46:40 GMT

Thought it interesting and relevant to the thread,

Octy 2, 1.9 TDI PD Ambiente 4x4 Combi, Company Octy 1.9 TDI Tour Combi.

Interesting read (both)

Thanks for that soldatov.

It does answer my original question too:

Here's another thing though - how come Porsche (which surely doesn't sell that many cars, even if they are all expensive ones) is big enough to buy 74% of VW?

Its crap how VW make that much money.

Then they pay me off as they cant afford to pay me.

Its crap how VW make that much money.

Then they pay me off as they cant afford to pay me.

Think you'll find its the dealer you work for that can't pay you... not VW. Remember ALL dealers in the UK are just franchises.

Still bams. Either way, i'm out a job and its crap. Got to blame somone. Ha.

Hmm - it seems that in the end, Porsche didn't come out of this one as well as they'd hoped when they launched their attempted takeover of VW.

BBC NEWS | Business | Prosecutors raid Porsche offices

Look the stock market boys are throwing the toys out of the pram.

It's ok when they day trade and short causing prices to be altered and cashing in on the changes, but as soon as other people take money from them in the same way they can't take it.