Porsche's VW takeover: The Truth?

[niky]

Editorial: How Porsche NSFWed the Hedge Funds

By Bertel Schmitt
November 3, 2008 - 3,719 views

So you thought Porsche financed the VW takeover by foisting overpriced floormats and trucks on their well-heeled buyers? Yesterday’s issue of Die Welt, Germany’s conservative newspaper, thinks different. They undug the dirt on Porsche’s takeover-machinations of Volkswagen. It’s a story that makes Cerberus look like a frisky puppy. It’s an account that makes banks and hedge funds look like morons.

In March 2005, Porsche Chief Wendelin Wiedeking, and his clever CFO Harald Härter traveled to the picturesque Salzburg. They presented to the Porsche/Piech clan their strategy to subjugate the auto giant Volkswagen. The cunning plan: Porsche buys VW for no money. Make that: Porsche bamboozles hedge funds– supposedly the smartest of the smart– into unwittingly forking over the cash.

The Porsche/Piech clan liked the plan, and it was set in motion. Unspoken, but obvious: that meeting included-– virtually at least-– Ferdinand Piech. As every TTAC B&B knows, Ferdinand Piech owns a good chunk of Porsche, and serves as the head of Volkswagen’s Supervisory Board. Did he exercise the powers vested into him, and warned the shareholders of VW of the machinations? We don’t think so.

Using the whole arsenal of arbitrage, swaps, puts, straddles, fraptions, and butterflies, Porsche drove the VW share up, while the hedge funds, fixated on the fundamentals of the flopping auto market, sold short. Porsche used every available loophole of the German law: A swap for instance doesn’t need to be registered. Porsche owned more and more of VW without anyone noticing. Porsche/Piech controlled the news. They could buy low, sell high, and with leverage that would have put the awe in Archimedes. The proceeds were used to buy more stock (to move it) and more options (to make more money.)

Over the years, Porsche kept people guessing why they would invest into VW at all. Three years ago, Porsche announced to an astounded world that they bought 20 percent of VW’s stock. They positioned themselves as the benign white knight that kept VW’s vestigial virginity from being gang-raped by rabid Auslandskonzerne (foreign corporations.) If anybody asked where this would lead, no answers followed.

Did Porsche want just a small chunk of VW? Or a blocking minority of 25 percent? Or, gasp, would they go for 51 percent? When questioned, Wiedekind assuaged the markets: “We are not going for a blocking minority.” A few months later, Porsche had more than 25 percent. Reminded of what he had said before, Wiedekind smiled. He had not lied. A blocking minority was not what they had in mind. They wanted the whole kit and caboodle.

In the meantime, Porsche conducted the orchestra of financial instruments like a Kapital-Karajan. Their financial fiddling did not remain completely unnoticed. Says the Economist, a bit belatedly: “The risks of short selling should have been apparent to the brightest hedge-fund managers in Mayfair and Greenwich because of widespread suspicion that Porsche, a dab hand in currency-derivatives markets, was also mucking about with options on VW stock.”

Indeed, Morgan Stanley warned clients on October 8th to refrain from playing “billionaire’s poker” by betting against Porsche. Max Warburton of Alliance Bernstein correctly predicted Porsche could make billions by squeezing short-sellers of VW’s shares. Porsche’s answer? “A fairy-tale.”

Likewise, Porsche’s balance sheet got curiouser and curiouser: In fiscal 2005/2006, Porsche showed a profit of €2.1b before tax, and of that, a whopping €900m were “non recurring items” – an euphemism for gains from speculation. “Currently, Porsche makes only a quarter of its profits from building its luxury cars,” says Die Welt, “and it won’t be long before their profits exceed their annual sales.” Which stood at €7.4b as of the last fiscal year.

The stock yo-yo of last week may have brought Porsche close, if not beyond that elusive target. In an all-out final attack, Porsche drove the hedgies into panic-buying, psyched funds managers into loading up on VW at all cost. Then, Porsche sold their options and made an even bigger killing. With an utter deficiency of shame, they spun even that as “providing a greater free-float to a constrained market.”

The funny thing: Porsche may get away with the murder of the hedgies. Actually, in Germany, Porsche’s backs are being slapped with Schadenfreude. One CEO of another company that is part of the DAX, wisely said off the record: ”How Porsche engineered the financing of the VW takeover is exemplary. Ingenious!” Ulrich Hocker of the Deutsche Schutzgemeinschaft für Wertpapierbesitz (German Protective Association of Shareholders) grins: “The losers are no small stockholders. This time, it was professionals who should have known the risks.”

The losers see it different: “Stock manipulation” grumbles DWS, the fonds of Germany’s banking giant Deutsche Bank. Unless totally dead, losers have a tendency to get even. Sneers the Economist: “Porsche may struggle to sell 911s to hedge-fund managers for years and years to come.” That may be the most benign revenge of the many that are being hatched in the hedges.

http://www.thetruthaboutcars.com/how-porsche-nsfed-the-hedge-funds/

All I can say is... as long as it was legal... pure genius. Cold-hearted... but pure genius...

 

[Danny]

Brilliant! Some fantastic business being done by Porsche...

 

[TheCracker]

Vorsprung durch intelligenz!

 

[Stotty]

Hilarious... Porsche do to the hedgies what they have been doing to everyone else for years... 0wn3ed is the phrase that springs to mind

 

[homeforsummer]

That's fantastic, who needs to build cars when you're that clever with the markets?

 

[YSSMAN]

All I can say is a bit of "bwahahahaha" when reading that, Porsche gets both a tip of the hat and a wag of the finger. Not that I'm mad, I think Porsche ownership isn't a bad idea, but its certainly an "interesting" way of doing things.

 

[Philly]

Sounds pretty interesting, although being no economist, I don't really understand what's going on. I agree though, that having Porsche owning VW probably won't be a bad thing.

Perhaps this somewhat explains why during this time that no automaker seems to be able to stay afloat, VW is taking off and making it look like the best of times with the amount of product coming out?

Oh, and the one thing that comes into my mind here is the possibility that this could be seen as insider trading or something...

 

[Omnis]

I read about this somewhere almost a week ago and was wondering why there was no news about it here.

This is what happens when you save money and stay liquid. Good job, Porsche.

I'll link the article when I find it again.

 

[forza2.0]

Porsche owning VAG is bad, for everyone but themselves and audi. fast audi's will suffer because of this though. bmw and mb are worried big time about porsche having control over audi.

 

[Scaff]

Porsche owning VAG is bad, for everyone but themselves and audi.

Please explain why you believe this..............

fast audi's will suffer because of this though.

............and this (particularly as you have managed to contradict yourself, how can fast Audi's suffering be good for Audi?).

bmw and mb are worried big time about porsche having control over audi.

Link please.



Ta

Scaff

 

[mustangGT90210]

I gotta say, this was an ingenious plan! Go Porsche!

 

[niky]

The one thing this is bad for is Audi's sporting portfolio... theoretically... as Porsche might not want any Audis stepping on their products' toes... but it's possibly a non-problem... Audi's interpretation of what a sportscar should be is very different from Porsche's.

Maybe now there won't be a need for a Panamera? (Here's to wishful thinking)

 

[harrytuttle]

Good. Good for them. Porsche/Piech is one of the few megalomaniacal billionaire families I respect. I kind of like the idea of VW being Porsche-owned again anyway.

 

[McLaren]

The one thing this is bad for is Audi's sporting portfolio... theoretically... as Porsche might not want any Audis stepping on their products' toes... but it's possibly a non-problem... Audi's interpretation of what a sportscar should be is very different from Porsche's.

Maybe now there won't be a need for a Panamera? (Here's to wishful thinking)

I think you're right that it's possibly not a problem. After all, why would Porsche let Audi & VW both keep their SUVs that spawned/spawn from Porsche's own Cayenne?

 

[Omnis]

Ok, I found the article I was talking about. It's from Monday.

http://www.lewrockwell.com/giles/giles29.html

 

[TheCracker]

I think you're right that it's possibly not a problem. After all, why would Porsche let Audi & VW both keep their SUVs that spawned/spawn from Porsche's own Cayenne?

Because they all cover slightly different ground, and all the money still gathers in the same pot at the end of the day.

 

[homeforsummer]

Because they all cover slightly different ground, and all the money still gathers in the same pot at the end of the day.

Exactly. All the VAG brands and Porsche themselves are dipping every toe in every different market they can - filling niches left, right and centre. Need an SUV? Here sir, have a Touareg. What's that? Your neighbor has just bought an X5 and you want to go one-up on them? The Q7 would be perfect for you. Ah but Sir wants more performance and dislikes diesels... can I recommend you the Cayenne?

Whichever "Sir" chooses, the money will be going the same way in the end. The same will apply to those deciding between an Audi TT-RS and a Cayman, or an R8 and a 911 (especially given the differences between these models anyway, unlike the big 4x4s) and so on.

And those wishing to have a Panamera might be completely different to those wishing to have an RS4/RS6/S8 or whatever, no matter what the overlap might suggest.

And at the end of the day, no matter what you think of the union, Porsche has been fantastically clever manipulating the markets like that.

 

[niky]

I, for one, am still amazed that the whole Octavia, Leon, Golf, A3 thing actually works. Just like coffee at Starbucks... spend the least amount of money to make the most varieties of product you can, with the same basic ingredients.

And unlike Ford or GM... VW's sub-company differentiation actually works.

 

[TheCracker]

And unlike Ford or GM... VW's sub-company differentiation actually works.

All GM do is rebadge the same dull product, the Astra or Corsa, and flog it worldwide. Perhaps they would be in a better place financially if they made their bread and butter vehicles a bit more desirable. You can't build brand loyalty by aiming your products at people who are just after a cheap means of transport.

 

[YSSMAN]

There are some discernible differences between some of the copycat products at GM, Ford and Chrysler, but that is always dependent on what it is and what brand its under. Unfortunately, time is usually the factor that determines what is what these days, and while all of them appear to be beginning to see how to cross-multiply platforms between brands in a proper way... Its still far from a science in Detroit.

 

[forza2.0]

Please explain why you believe this..............




............and this (particularly as you have managed to contradict yourself, how can fast Audi's suffering be good for Audi?).



Link please.



Ta

Scaff

answers to all 3 questions can be found in these links.

you will have to sign up though. pay particular attention to the posts made by eni.

http://www.germancarzone.com/automotive-sales-business-news/19151-porsche-vw-saga.html

http://www.germancarzone.com/automo...andts-finally-forming-automotive-holding.html

posted by eni:

Since the Audi R&D department is actually the one that drives the whole VAG development. Yet due VAG brand portfolio & mass production the solutions are much quicker implemented, and not so expensive - due to the economy of scale.

Audi has an enormous R&D potential. And Porsche that's what Porsche is targeting.

Porsche taking direct control of Audi is essential for Porsche. Not just Audi but also the whole "Premium division" of VAG (Audi, Bentley, Lamborghini, Bugatti).

VAG (VW, Skoda, Seat) will still be there to provide economies of scale. And that's the only advantage of VAG that Porsche is interested in.

Premium division under Porsche would be much better managed & run.

And under Porsche umbrella Audi would get a significant image boost ... Audi already builds superb cars yet in some markets their image is not so great - mainly connected to VW (especially in US).

And that's what worries BMW & MB the most: image boost for Audi brand, Porsche with direct access to Audi tech and R&D, and Lambo + Bentley + Bugatti run & managed by Porsche bosses. And all the brands (Porsche, Audi, Bentley, Lambo, Bugatti) benefiting from synergies from cooperation with VAG (economy of scale etc).

That would make the strongest premium carmaker in the world ... hurting MB & BMW badly.

So, to be able to be competitive MB & BMW would have to cooperate.

 

[Scaff]

answers to all 3 questions can be found in these links.

you will have to sign up though. pay particular attention to the posts made by eni.

http://www.germancarzone.com/automotive-sales-business-news/19151-porsche-vw-saga.html

http://www.germancarzone.com/automo...andts-finally-forming-automotive-holding.html

posted by eni:

Since the Audi R&D department is actually the one that drives the whole VAG development. Yet due VAG brand portfolio & mass production the solutions are much quicker implemented, and not so expensive - due to the economy of scale.

Audi has an enormous R&D potential. And Porsche that's what Porsche is targeting.

Porsche taking direct control of Audi is essential for Porsche. Not just Audi but also the whole "Premium division" of VAG (Audi, Bentley, Lamborghini, Bugatti).

VAG (VW, Skoda, Seat) will still be there to provide economies of scale. And that's the only advantage of VAG that Porsche is interested in.

Premium division under Porsche would be much better managed & run.

And under Porsche umbrella Audi would get a significant image boost ... Audi already builds superb cars yet in some markets their image is not so great - mainly connected to VW (especially in US).

And that's what worries BMW & MB the most: image boost for Audi brand, Porsche with direct access to Audi tech and R&D, and Lambo + Bentley + Bugatti run & managed by Porsche bosses. And all the brands (Porsche, Audi, Bentley, Lambo, Bugatti) benefiting from synergies from cooperation with VAG (economy of scale etc).

That would make the strongest premium carmaker in the world ... hurting MB & BMW badly.

So, to be able to be competitive MB & BMW would have to cooperate.

Thank you.

Now would it have hurt to post those links in the first place?

Now while it is of interest I don't actually see anything that would indicate a problem for VAG brands, most of them do not compete directly with Porsche products at all and those that do have to a degree differing customer profiles.

That said of course some models will suffer and quite likely get the chop, that is however the nature of takeovers, and I'm certain that VAG would rather this than an outside (of Germany that is) group buying the company.


I actually agree that this is worrying news for BMW and MB, however I think for both those manufacturers the current global situation is of a more immediate concern (in my home town the Mini site staff have been told that the two week Christmas shut-down will now be a four week shutdown).


Regards

Scaff

 

[homeforsummer]

That said of course some models will suffer and quite likely get the chop, that is however the nature of takeovers, and I'm certain that VAG would rather this than an outside (of Germany that is) group buying the company.

It'll be interesting seeing which (if any) models get the chop, because as I mentioned before, both VAG and Porsche aren't companies known for not exploiting niches. I'd cautiously suggest that they won't remove a single product line from the whole of VAG, though they may curtail development of certain future models if Porsche thinks that there won't be enough of a benefit to producing them.

I actually agree that this is worrying news for BMW and MB, however I think for both those manufacturers the current global situation is of a more immediate concern (in my home town the Mini site staff have been told that the two week Christmas shut-down will now be a four week shutdown)

I agree that the economic situation is the major concern at the moment, though I'm not sure how worried M-B and BMW will be ablout the Porsche/VAG situation. Porsche and VAG have always had links (though have never been as financially strong as they are now) but I get the impression that BMW/VAG/M-B customers are very different types of people so I can't see many people jumping ship.

What might, I guess, be more of a problem is attracting new customers to the brand, and VAG are in a strong position for this, because a customer of a budget brand like Skoda or SEAT might well be future customers for VWs and Audis... and then Porsches, without giving BMWs or Mercs a second chance.

Actually, now that I've talked through it like that I can see quite clearly why BMW and Merc might be worried!

 

[forza2.0]

More bad news for bmw and mercedes.

BMW AG (Group):
Q3 revenues: euro 12,6 billion (-8.6%) ... YTD: euro 40.4 billion (+0%)
Q3 EBIT: euro 387 million (-60.2%) ... YTD: euro 1,639 million (-43.6%)
Q3 profit after tax: euro 298 million (-62.9%) ... YTD: euro 1,292 million (- 39.7%)

BMW Automobiles Division:
Q3 revenues: euro 11.1 billion (-15.2%) ... YTD: euro 37 billion (-4.5%)
Q3 EBIT: euro 141 million (-82.1%) ... YTD: euro 1,155 million (-49.2%)




Daimler AG:
Q3 revenues: euro 23,8 billion (-7.4%)
Q3 EBIT: euro 648 million (-65.7%)
Q3 profit after tax: euro 213 million (loss in Q3 2007)

MB Cars Division:
Q3 revenue: euro 11.6 billion (-17.7%).
Q3 EBIT: euro 112 million (-91.6%)




Audi AG (Audi + Lamborghini; Seat is no longer inclouded in Audi AG financial reports):
YTD revenues: euro 25.8 billion (+2.1%)
YTD EBIT: euro 2,059 million (+13.6%)



The trouble that bmw are having is that a huge chunk of their sales are leased, a method used by premium car manufacturers to make cars out of reach of the average person affordable. However now that the bottom has dropped out of the used car market they have lost so much money its unbelievable, and they are curtailing back their leasing offers, which alot of their demographic customers depend on.

p.s

audi's figures are still ytd due to them not having realesed last months figures yet. audi always take longer than mb and bmw so dont let it be taken as a sign things arent too rosy for them, although it might not be.

 

[Tornado]

Something rather funny concerning Porsche:
Porsche’s Net Profit Soars 52 percent. Or More.

Mum’s the word on Porsche’s Investors Relations page. We’ll probably have to wait until Monday, after they are done partying.