Do You Believe in Cycles?

Now: Volkswagon plans an IPO of Porsche this month or next.

Precisely 14 years ago during the previous bear market: THE VOLKSWAGEN SHORT SQUEEZE (2008)

By 2006, Porsche had announced that it wanted to boost its shareholdings of VW and did so by acquiring substantially more stock in the company, which, in turn, began pushing the share price higher. As the price continued to rise throughout 2007, many hedge funds held the view that VW stock had become overvalued and increased their short positions in the troubled carmaker, which had amassed substantial debt by that time. And as the global financial crisis unfolded, of course, VW only suffered further as the demand for new cars collapsed. This made VW an even more enticing candidate for short selling, as its stock was widely expected to plummet.

By March 2008, Porsche owned 31 percent of Volkswagen and confirmed at the time that it was not looking to increase its holdings to 75 percent, as was widely rumoured. “The speculation of going to 75 percent overlooks the realities of the shareholder structure of VW,” Porsche said. “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.”

Nonetheless, it became apparent over the ensuing six months that Porsche had decided to up its interest in its rival, which it revealed, to widespread astonishment, on October 26. “Due to the dramatic distortions on the financial markets Porsche Automobil Holding SE, Stuttgart, has decided over the weekend to disclose its holdings in shares and hedging positions related to the takeover of Volkswagen AG, Wolfsburg,” Porsche’s press release noted. “At the end of last week Porsche SE held 42.6 percent of the Volkswagen ordinary shares and in addition 31.5 percent in so called cash settled options relating to Volkswagen ordinary shares to hedge against price risks, representing a total of 74.1 percent.”

As such, Porsche suddenly had the potential to control 74.1 percent of VW. Combined with Lower Saxony’s 20-percent holding, moreover, this meant that the amount of VW shares available to buy on the open market suddenly plunged to less than 6 percent. According to Porsche, however, it was not attempting to acquire VW fully. But it did acknowledge that it had decided to make this announcement “after it became clear that there are by far more short positions in the market than expected”.

Quite the coincidence in timing if you ask me.