Back in the overly-exciting autumn of 2008, several hedge funds took a beating as a result of their speculation in the shares of Volkswagen, and the spike in VW's share price I discussed here at the time.
Those who were on the business end of a beatdown included Greenlight Capital, SAC Capital, Glenview Capital, Marshall Wace, Tiger Asia, Perry Capital, and Highside Capital, according to reports at the time. There have been rumors of effects going beyond that list, and beyond the hedge fund world.
Over the weekend of October 25-26, Porsche unexpectedly disclosed that through the use of derivatives it had accumulated a 74.1% stake in VW, up from 34%. The state of Lower Saxony owns 20.1% This meant that there was a "free float" of only 5.8% of VW's capitalization. It also meant, as a matter of arithmetical necessity, that some of the shares that were on loan for shorting must actually have been the property of Porsche or Saxony, though the short sellers presumably obtained them through the services of a prime broker.
It didn't take long for short sellers to do the math and decide that the exit door was shockingly narrow. They rushed to cover their shorts, and the price spiked, up 145% when the exchanges opened for business Monday, October 27.
Four of the large hedge funds involved (Elliott, Glenhill, Glenview, and Perry) have now filed a lawsuit in federal court in New York alleging market manipulation and seeking to recover these losses.
In a statement, Porsche said: "The lawsuits have not been delivered to us yet. We point to the fact that we have always complied with current capital market regulation."
Showing posts with label Porsche. Show all posts
Showing posts with label Porsche. Show all posts
Tuesday, January 26, 2010
Wednesday, October 29, 2008
Three brief items
1. More on Porsche, VW, etc.
A report in today's Wall Street Journal says that several hedge funds have taken a beating as a result of their speculation in VW shares, and the spike in VW's share price I discussed in yesterday's entry.
"Those affected by the moves include Greenlight Capital, SAC Capital, Glenview Capital, Marshall Wace, Tiger Asia, Perry Capital, and Highside Capital," the p. C1 story said.
There have been rumors of effects going beyond that list, and beyond the hedge fund world.
2. Ackman has a plan for Target
Pershing Square Capital Management, which owns nearly 10% of the giant retailer Target, said it has a plan for a transaction that will boost Target's value. It will present its plan today, Wednesday.
Bill Ackman is the principal of Pershing Square, a hedge fund that has been involved in some memorable corporate in-fighting over the years. To his credit, Ackman was arguing in a very public way, before it became a commonsensical observation, that credit ratings agencies and banks were co-operating to prop up bond insurers such as MBIA so that the banks wouldn't have to write down their exposure to such insurers.
Anyway, Pershing's latest statement on Target is as follows: "Pershing Square believes that the insights gained by sharing the potential transaction in a public forum will benefit Target and all of its stakeholders."
One clue to what he has in mind: Mr. Ackman recently expressed interest in a potential derivatives transaction that he said would let Target effectively retire more of its own shares. That provides a nice segway to my final item of the morning.
3. Canada wants to restrict bank share buybacks
The most important fnancial regulator in Canada at the federal level, the Superintendent of Financial Institutions, put out an advisory note Monday that banks shouldn't be buying back their own shares. That runs counter to the goal of strengthening their balance sheets.
Canada's banks are in general in better shape than those in the US or in Europe, where as one would expect the temptation to buyback/retire shares just isn't a big problem right now. Canada's financial institutions generally have a strong retailing base, and their mortgage-lending practices have remained conservative. So I'm a bit baffled by the SFI's concern.
Apparently, though, he thinks their practices may not be quite conservative enough. The SFI's note said: "The current environment calls for increased conservatism in capital management."
A report in today's Wall Street Journal says that several hedge funds have taken a beating as a result of their speculation in VW shares, and the spike in VW's share price I discussed in yesterday's entry.
"Those affected by the moves include Greenlight Capital, SAC Capital, Glenview Capital, Marshall Wace, Tiger Asia, Perry Capital, and Highside Capital," the p. C1 story said.
There have been rumors of effects going beyond that list, and beyond the hedge fund world.
2. Ackman has a plan for Target
Pershing Square Capital Management, which owns nearly 10% of the giant retailer Target, said it has a plan for a transaction that will boost Target's value. It will present its plan today, Wednesday.
Bill Ackman is the principal of Pershing Square, a hedge fund that has been involved in some memorable corporate in-fighting over the years. To his credit, Ackman was arguing in a very public way, before it became a commonsensical observation, that credit ratings agencies and banks were co-operating to prop up bond insurers such as MBIA so that the banks wouldn't have to write down their exposure to such insurers.
Anyway, Pershing's latest statement on Target is as follows: "Pershing Square believes that the insights gained by sharing the potential transaction in a public forum will benefit Target and all of its stakeholders."
One clue to what he has in mind: Mr. Ackman recently expressed interest in a potential derivatives transaction that he said would let Target effectively retire more of its own shares. That provides a nice segway to my final item of the morning.
3. Canada wants to restrict bank share buybacks
The most important fnancial regulator in Canada at the federal level, the Superintendent of Financial Institutions, put out an advisory note Monday that banks shouldn't be buying back their own shares. That runs counter to the goal of strengthening their balance sheets.
Canada's banks are in general in better shape than those in the US or in Europe, where as one would expect the temptation to buyback/retire shares just isn't a big problem right now. Canada's financial institutions generally have a strong retailing base, and their mortgage-lending practices have remained conservative. So I'm a bit baffled by the SFI's concern.
Apparently, though, he thinks their practices may not be quite conservative enough. The SFI's note said: "The current environment calls for increased conservatism in capital management."
Tuesday, October 28, 2008
Porsche and VW
VW shares shot up on the Deutsche Börse over the last two days in what looks like a classic "short squeeze." I'll take this as an opportunity to go into full-pedantry mode and explain what a short squeeze is. Those of you who already know, or who neither know nor care to learn, are of course free to click yourselves elsewhere at this point!
The price of a share of equity in Europe's largest auto manufacturer increased by 147% Monday, and is up again, though somewhat less dramatically, today.
Here's a closely-related fact: as of last Thursday, 12.9% of VW's shares were on loan to short sellers.
A short squeeze in an uncomfortable event in the life of a short seller. Specifically, it is what happens when a substantial share of a company's stock is out on loan for purposes of a short play, and the stock's price unexpectedly starts to rise. The short sellers need to cover, and they all may decide they need to cover at the same time, because they now expect the stock price to continue rising and they have to cut their losses. So they head for the same exit door at the same time, shouting "buy, buy, buy!"
This of course makes the price of passage through that exit increasingly expensive.
That, then, is what is going on with VW. Over the weekend, Porsche unexpectedly disclosed that through the use of derivatives it has recently accumulated a 74.1% stake in VW, up from 34%. The state of lower Saxony owns 20.1% This means that there is a "free float" of only 5.8% of VW's capitalization. It also means, as a matter of arithmetical necessity, that some of those shares on loan must actually be the property of Porsche or Saxony, though the short sellers presumably obtained them through the services of a prime broker.
It didn't take long for short sellers to do the math and decide that the exit door was shockingly narrow.
VW is one of the shares on which the Teutonic DJIA, the Dax index, is built. So Dax has shot up along with VW. This morning the Financial Times quotes one analyst thus: "This is a special situation and I think it will go on as long as Deutsche Börse doesn't make a decision regarding these extreme movements in VW shares."
The price of a share of equity in Europe's largest auto manufacturer increased by 147% Monday, and is up again, though somewhat less dramatically, today.
Here's a closely-related fact: as of last Thursday, 12.9% of VW's shares were on loan to short sellers.
A short squeeze in an uncomfortable event in the life of a short seller. Specifically, it is what happens when a substantial share of a company's stock is out on loan for purposes of a short play, and the stock's price unexpectedly starts to rise. The short sellers need to cover, and they all may decide they need to cover at the same time, because they now expect the stock price to continue rising and they have to cut their losses. So they head for the same exit door at the same time, shouting "buy, buy, buy!"
This of course makes the price of passage through that exit increasingly expensive.
That, then, is what is going on with VW. Over the weekend, Porsche unexpectedly disclosed that through the use of derivatives it has recently accumulated a 74.1% stake in VW, up from 34%. The state of lower Saxony owns 20.1% This means that there is a "free float" of only 5.8% of VW's capitalization. It also means, as a matter of arithmetical necessity, that some of those shares on loan must actually be the property of Porsche or Saxony, though the short sellers presumably obtained them through the services of a prime broker.
It didn't take long for short sellers to do the math and decide that the exit door was shockingly narrow.
VW is one of the shares on which the Teutonic DJIA, the Dax index, is built. So Dax has shot up along with VW. This morning the Financial Times quotes one analyst thus: "This is a special situation and I think it will go on as long as Deutsche Börse doesn't make a decision regarding these extreme movements in VW shares."
Sunday, March 16, 2008
German corporate law.
It appears that German corporate law requires that, unless a corporation's by-laws provide otherwise, certain decisions can only be made if they are opposed by fewer than 25% of the proxy shares voted. This makes the figure 25% the "blocking minority."
Volkswagen has written into its own bylaws a still more generous provision for dissenters. It has a blocking minority of only 20%.
Twenty percent is also the share of the equity of VW owned by the government of Lower Saxony, VW's home state.
That not only gives Lower Saxony blocking power, but it makes that state the second largest of the company's shareholders. The largest shareholder is thw sports car maker, Porsche.
A ruling last year by the European Court of Justice has pressured VW toward making some corporate governance changes, fitting in more coherently with the rest of the EU. Porsche understands the ECJ to mean that VW should increase the blocking percentage. This wouldn't mean a shift to simple majority rule. It would probably be an increase to the German default option of 25% block. But even so, it would mean that in order to prevent some change that it didn't like, Lower Saxony would have to find shareholder allies.
This would be, if you will, a sort of deregulation.
Unsurprisingly, Lower Saxony doesn't see the ECJ ruling the same way Porsche does.
My sympathies are always against the government. Go, Porsche!
The punchline of an old joke says it best. "It's not a porch, it's a Mercedes."
Volkswagen has written into its own bylaws a still more generous provision for dissenters. It has a blocking minority of only 20%.
Twenty percent is also the share of the equity of VW owned by the government of Lower Saxony, VW's home state.
That not only gives Lower Saxony blocking power, but it makes that state the second largest of the company's shareholders. The largest shareholder is thw sports car maker, Porsche.
A ruling last year by the European Court of Justice has pressured VW toward making some corporate governance changes, fitting in more coherently with the rest of the EU. Porsche understands the ECJ to mean that VW should increase the blocking percentage. This wouldn't mean a shift to simple majority rule. It would probably be an increase to the German default option of 25% block. But even so, it would mean that in order to prevent some change that it didn't like, Lower Saxony would have to find shareholder allies.
This would be, if you will, a sort of deregulation.
Unsurprisingly, Lower Saxony doesn't see the ECJ ruling the same way Porsche does.
My sympathies are always against the government. Go, Porsche!
The punchline of an old joke says it best. "It's not a porch, it's a Mercedes."
Subscribe to:
Comments (Atom)
