996FourEss

The short squeeze was pretty obvious, they have been vocal about increasing their stake in VW over time to north of 50% for well over a year, the State of Lower Saxony has 20% so where is the big surprise that there would be limited free float out there. Sometimes I am amazed at how thoughtless certain members of the hedge fund community are....

Anyway, agree, profits are certain to come down now as sales start falling heavily. Can't see sales doing that much differntly to what happened in the early 90s. Having said that, think Porsche is much better set-up this time around to weather a downturn.

Likemystoppie?

You'd be upset to know that majority of their profits from the last year especially have not nearly as much to do with the products they sell and more to do with great positioning of certain assets and watching their portfolio.

Rave

There's no money to be made out of manufacturing cars at the moment but screwing hedge funds on VW shares is not only hugely profitable and is also uplifting for the soul. You guys in the US need to ensure that Porsche's pricing policy is sensible. The dollar has risen +20% and if that is refelected in new pricing the second hand market is stuffed. In the UK, the price of new Porsches is going to be prohibitive. As the used market has collapsed, we might as well run them into the ground.

bitterazn

Porsche played a great hand of poker and cunningly exploited loose German regulations on market manipulation to squeeze the shorts. And as a member of the "hedge fund community" let me tell you it's a big boy game so I don't begrude them a dime. As David Einhorn, the head of Greenlight and one of the big losers in the squeeze reminded his investors recently, "There no crying in baseball."

That being said, it's pretty inaccurate to describe it as "pretty obvious." Porsche publically said one thing and did the other. Is this legal? Yes. Is it deceptive? Yes. Is it an awesome bluff? Yes. But is it "obvious"? No.

As cribbed from the Wall Street Journal (http://online.wsj.com/article/SB1226...od=wsjcrmain):

"By March 2007, Porsche had boosted its stake in VW to 30%. That triggered a German rule requiring it to make a full tender offer for VW shares. The company said it wasn't interested in a takeover of VW. Forced to make a tender offer, Porsche offered the legal minimum price the law let it offer, which was €100.92 for each voting share. Only 0.6% of the remaining VW shares were tendered.

...

This past March, Porsche's supervisory board gave the green light to take the VW stake above 50%, and this goal was announced ... But Porsche denied growing talk that it was gunning for 75% of VW. In a news release, the company said the possibility of that was "very small indeed" and dismissed it as "speculative mind games of analysts and investors."

In mid-September, Porsche disclosed it had raised its VW stake to just above 35%. At the Paris Auto Show in early October, Mr. Wiedeking told reporters a 75% stake was a "purely theoretical option." On Oct. 24, a Friday, VW's share price closed at €210.85 on Frankfurt's stock exchange."

996FourEss

bitterazn, I would suggest to you that (1) there was always going to be a limited float, even at the 51% level (2) it has always been considred highly likely in the industry that Porsche would need to get to the consolidation level with VW so as to have the benefit of the VW fleet for the calculation of group CO2 emission levels. These two facts have been known since 2005. The mandatory takeover offer at some 20 euros below where the shares were trading was nothing more than a regulatory fiction (and I am surprised 0.6% of the shares outstanding tendered).

The shares at EUR200 were fully valued by any reasonable calculation of value. The short trade initiated at that level was fundamentally not a bad trade. What were the risks to it when going into it: (1) that the shares would not fall within the envisasged time period, although one had the generally falling market for stocks and auto stocks to mitigate that; and (2) that Porsche would continue to increase its stake with cash settled options. Well, would tend to think that at a 51%+ target for holding the underlying plus 20% in the hands of the State of Lower Saxony + whatever German index funds would be required to hold meant there was an extremely limited group of willing buyers and sellers of the stock in the market. Not sure what one concludes as the effective float but it ain't big for a Company this size. Thus, buyer or seller beware, right. Somehow I think the bigger picture got lost, the lack of information as to the effective free float got lost, and perhaps the lack of information as to the level of OTC cash settled options written and hedged seems to have been lost (and Porsche has always been open that it possessed a sizeable position in options to acquire VW shares). Still not clear to me why they need to go now from 51% to 75%, that said, the arguments between Piech on one hand and Porsche/Wiedeking on the other are by no means new information. A corporate changing its position on desired holding levels in a situation of great market and internal political flux must have been on the cards.

Thus, right conclusion, VW fully valued and shares heading south from a value perspective, but in this case, the risk to the trade actually came about. I stand by my orignal point that some people putting on this trade of shorting VW may have used the old "30mins of analysis and what the hell everyone else is doing it approach" without doing the additional homework required in what is a highly complex and charged situation where you have family rivalry (at target and acquiror), state shareholdings, murky disclosure (just look at the original disclosure when it first took a sizeable position) and a bunch of other intangible factors present. No one likes losing money but putting on trades in such a situation carries a degree of risk and perhaps not everyone fully understood the risk here....

After all is said and done, a little intrigue adds to the mystery of the Company. Amazing to see Porsche effectively controllinging not only VW, but also MAN and Scania in Europe given the Company almost went bankrupt at the beginning of the 90's.