The Porsche – Volkswagen deal and the power of hedge funds

The deal between Volkswagen and Porsche is complicated. In the past, Porsche bought shares of VW and acquired an interest of around 30% of VW. At that point there were only interested to be a minority shareholder. Then, they changed their strategy. The CFO of Porsche, Holger Haerter, developed – together with the CEO Wendelin Wiedeking – a complex financing model to take over Volkswagen. Part of this strategy was to invest in options and gamble with the stock price of VW. As a consequence the VW shares were sky rocking last year and made Porsches’ cash till ring. The hedge funds also played a part in this bet. Then, after a couple weeks, the VW shares went back to normal.

However, one of the large Porsche shareholders and member of the board, Ferdinand Piëch, is also Chairmen of the VW board and he had different plans for the company. He wanted the transfer to work the other way round, i.e. VW takes over Porsche. In the end, he won the power struggle due to Porsches’ problems with repaying their loans and discovering new funds for the takeover. Wiedeking had to leave the company, together with his CFO.

Now, the stock market reacts to these developments again. This time the hedge funds are betting on further dropping share prices which led on the one hand today to a drop of almost 20% of the stock price. One of the reasons is that Porsche has sold their options to Qatar. On the other hand the non-voting preference shares went up.

That means that the biggest European car maker has lost more than $ 28 billion of its market value in just 2 trading days. It has to be seen if the hedge funds are right and the downfall of the VW shares will continue.