subject: Short sellers make VW the world's priciest firm posted: Tue, 28 Oct 2008 18:49:53 -0000
[A tale of fun and games at Volkswagen, starring a short squeeze,
billions of euros, claims and counter-claims. A candid insight into
the machinations of short selling and a sky-high share price in the
middle of a credit crunch. Capitalism at its most curious... - Stu]
Short sellers make VW the world's priciest firm
Tue Oct 28, 2008 6:00pm GMT
By Sarah Marsh
FRANKFURT (Reuters) - Volkswagen (VOWG.DE: Quote, Profile, Research)
briefly became the world's biggest company by market value on
Tuesday, as short sellers caught betting on a price drop with
borrowed stock scrambled to find shares after a buying spree by
Porsche (PSHG_p.DE: Quote, Profile, Research).
Short sellers desperate to close their positions paid as much as
1,005 euros a share during the session following Sunday's news that
there was less than 6 percent of VW voting stock still floating in
the market.
At that price Volkswagen's voting stock was worth 296 billion euros
(237 billion pounds), or more than the $343 billion (220.2 billion
pound) market capitalisation of Exxon Mobil (XOM.N: Quote, Profile,
Research).
VW shares later closed trading on Tuesday up 82 percent at 945 euros.
The share price has rocketed since Porsche revealed in a surprise
announcement on Sunday that it had effectively gained control of 74
percent of Volkswagen's voting shares.
In March, when Porsche was still sitting on a long-held 31 percent
direct stake, it said it was not seeking to increase its holding to
75 percent, bearing in mind that the state of Lower Saxony holds a 20
percent stake in VW.
"The speculation of going to 75 percent overlooks the realities of
the shareholder structure of VW, Porsche said at the time.
"In view of the fact that Lower Saxony as second largest shareholder
owns 20 percent of VW, the probability of acquiring the necessary
shares in freefloat is extremely low."
Meanwhile on Tuesday a spokesman for German market regulator BaFin
said it was looking into the VW share price movement for any sign of
insider trading or market manipulation.
Porsche denied it was manipulating the market and said that the
market had mixed up cause with effect.
"We vehemently reject the accusation of share price manipulation," a
spokesman for Porsche said. "The ones responsible are those that
speculated with huge sums of money on a falling Volkswagen share
price."
Porsche's statement on Sunday revealed that it had raised its direct
stake to 42.6 percent, held a further 31.5 percent in cash-settled
stock options and that it intended to increase its holding in the
world's third largest carmaker to 75 percent next year.
It said it was announcing its plans because the number of short
positions in VW were considerably higher than it expected and it
consequently wanted to give investors the chance to unwind their bets
"without haste and without greater risk."
Around 12.8 percent of Volkswagen's entire market capitalisation was
on loan as of October 25, the most recent day for which data was
available, according to financial market data consultant
dataexplorers.com. This compared with an average 5 percent for all
DAX stocks.
The "mother of all short squeezes," as one analyst phrased it, led to
an investor outcry alleging that they were duped by Porsche.
Dealers said those traders who had sold borrowed VW shares in the
hope of buying them back at lower prices had been panicked by the
announcement of Porsche's holding.
"Someone must have been very desperate to get a hold of the stock, so
there will be a big surprise at some point who will have all these
losses -- because someone must have lost a lot of money," said
Christian Schick, head of portfolio management in Germany for Fortis
Investments.
Shares in Morgan Stanley (MS.N: Quote, Profile, Research), Goldman
Sachs Group (GS.N: Quote, Profile, Research) and France's Societe
Generale (SOGN.PA: Quote, Profile, Research) all tumbled on Tuesday
with traders saying there was speculation that the banks might be
caught on the wrong side of trades involving Volkswagen.
Goldman declined to comment, but people inside the company said it
had no Volkswagen losses, while a Morgan Stanley spokesman said that
the company has no exposure to the automaker. SocGen could not
immediately be reached for comment, but earlier on Tuesday said it
was sticking with its third-quarter earnings forecast.
VOLKSWAGEN DAX WEIGHTING?
Shares in VW were up 45 percent at 689.9 euros by 4:04 p.m., after
tripling at one point in the previous session.
This meant they were trading at around 63 times expected earnings for
2009, at a massive premium to rivals such as Toyota (7203.T: Quote,
Profile, Research) and Daimler (DAIGn.DE: Quote, Profile, Research).
Analysts and traders said the stampede was historic for German large
caps, but they could foresee VW shares continuing to rise or stay at
current levels.
"The problem is, from a fundamental point of view, shares are really
overvalued. But when the short squeeze comes to an end, there are not
enough shares available to bring the share price back down," said one
Frankfurt-based analyst.
Despite the massive rise in VW shares and talk of little free float
remaining, the Frankfurt Stock Exchange said it did not plan any
changes in the German blue-chip DAX index.
But Wolfgang Gerke, a member of the Frankfurt Stock Exchange's
Exchange Council, told manager magazin's online portal that VW stock
should be reweighted on the German DAX bluechip index as soon as
possible.
When asked about the current, nearly 17 percent weighting that
Volkswagen's stock has on the gauge, Gerke said: "Deutsche Boerse
needs to act now and reduce VW's weighting on the basis of its
considerably lowered freefloat."
The Finance Ministry declined to comment on the rise in the
Volkswagen share price and the Economy Ministry did not respond to
multiple calls seeking comment.
(Reporting by Sarah Marsh, Christiaan Hetzner, Tyler Sitte, Alexander
Huebner and Sabine Wollrab; Additional Reporting by Annika Lehmann,
Tim Hepher, Noah Barkin; Editing by Andrew Callus and Greg Mahlich)
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