Porsche's Peril: Revenge Of The Hedgies

Bertel Schmitt
by Bertel Schmitt

Hedge funds are busy seeking painful revenge on Porsche. According to the Financial Times, they “have gained more ammunition for their legal complaints against Porsche after the German sports carmaker revealed it had made almost $514M by placing bets on several German blue-chip shares, in addition to last year’s controversial trades in Volkswagen options.” Why is this tidbit consequential? Because Porsche had always maintained that all they had in mind was the innocent takeover of Volkswagen.

In 2008, Porsche had higher profits than sales. They made a profit of €6.8B from VW option trades and about €1B from selling sports cars. Last October, Porsche disclosed that it controlled, through direct holdings and options, 74 percent of Volkswagen. This catapulted the VW share price above the €1000 mark and inflicted large losses on hedge funds and other investors that had placed bets on a falling VW share price.

Last week, transcripts of a Porsche shareholder’s meeting in January were released. In this meeting, Porsche CFO Holger Härter said: “We have also arranged share options to generate liquidity. The underlying shares were referring to Dax companies and not to Volkswagen.”

Says the Financial Times: “His revelation undermined Porsche’s claims that its option trades in VW were driven by industrial logic as it built a stake in Europe’s largest carmaker.” Which adds extra firepower to the ammo dump being amassed.

Hedge funds have already filed legal complaints against Porsche at several courts in Germany. Bafin, the financial watchdog, is investigating possible market manipulation of VW shares. Porsche denies allegations that it manipulated VW’s share price. German prosecutors will not decide whether to launch a formal investigation into the hedge funds’ complaints until Bafin has completed its probe.

Porsche’s Wendelin Wiedeking said the company was simply using options to hedge against a rise in VW’s share price: “We are not speculators—we never have been and will never want to be.” His CFO said otherwise: The VW option trades and the revelation of further trades in other Dax shares make Porsche indeed look like a speculator.

In a separate article, the Financial Times says that there exists “some fear that the company’s risky options strategy could blow up in its face. One fear is that the owners of Porsche, the Piëch and Porsche families, might one day follow the fate of Schaeffler and Merckle, two German industrial families that pursued high-risk strategies and could soon lose control of their business empires.”

Max Warburton, an analyst at Bernstein Research, says: “Porsche had €31B in stock options liabilities on its balance sheet in July 2008. There is a huge amount of nervousness about this around.”

Holger Härter, Porsche’s chief financial officer, has pointed out that the Volkswagen stake is valued at €117 a share in the company’s books, way below its current share price of about €250. If VW’s share price may one day depart from its takeover-inflated value and come down to levels suffered by other carmakers, Porsche will go up in smoke. Hint: VW does not rule out a loss in the first quarter.

The next risk is Porsche’s ability to refinance a €10B syndicated loan that expires at the end of March.

And by the way: No further gains from VW options trades are expected. It could be a rough year for Porsche.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href="http://www.tomokoandbertel.com"> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href="http://www.offshoresuperseries.com"> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Wsn Wsn on Feb 17, 2009

    Jared said: Excuse me? Did Porsche hold a gun to his head and make him bet billions on the price of VW stock? Did Porsche push him in front of that train? Madoff didn't hold a gun to anyone's head. Why is he prosecuted? Is this a dictatorship?

  • Landcrusher Landcrusher on Feb 17, 2009

    WSN, Your argument makes no sense at all. I suspect you didn't think it all the way through?

  • CanadaCraig You can just imagine how quickly the tires are going to wear out on a 5,800 lbs AWD 2024 Dodge Charger.
  • Luke42 I tried FSD for a month in December 2022 on my Model Y and wasn’t impressed.The building-blocks were amazing but sum of the all of those amazing parts was about as useful as Honda Sensing in terms of reducing the driver’s workload.I have a list of fixes I need to see in Autopilot before I blow another $200 renting FSD. But I will try it for free for a month.I would love it if FSD v12 lived up to the hype and my mind were changed. But I have no reason to believe I might be wrong at this point, based on the reviews I’ve read so far. [shrug]. I’m sure I’ll have more to say about it once I get to test it.
  • FormerFF We bought three new and one used car last year, so we won't be visiting any showrooms this year unless a meteor hits one of them. Sorry to hear that Mini has terminated the manual transmission, a Mini could be a fun car to drive with a stick.It appears that 2025 is going to see a significant decrease in the number of models that can be had with a stick. The used car we bought is a Mk 7 GTI with a six speed manual, and my younger daughter and I are enjoying it quite a lot. We'll be hanging on to it for many years.
  • Oberkanone Where is the value here? Magna is assembling the vehicles. The IP is not novel. Just buy the IP at bankruptcy stage for next to nothing.
  • Jalop1991 what, no Turbo trim?
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