'Porsche'-Auto Company Or Hedge Fund?

Thorsten Jacobs,a car industry analyst described Porsche as 'an investment bank with a car showroom attached.' Maybe with good reason.Under Holger Harter, its finance director,Porsche has been making more money from financial market operations than from selling cars,for the last several years.

It was Ferdinand Porsche, the founder of Porsche who had designed the Volkswagen Beetle,before setting up his own company which bears his name till this day.

So why was Porsche dabbling in stocks instead of concentrating on selling cars? Its long term goal has been to acquire VW,a company almost fifteen times its own size! Using cash-settled options Harter ensured that Porsche had cornered almost 75% of VW shares by October 2008. Strangely market speculators could never guess Porsche's interest in VW. The credit crunch had hit the auto industry very hard and auto shares all over the world were in freefall. VW shares defied logic and refused to budge. Hedge fund managers, sensing a killing, short sold VW shares in huge quantities.They reasoned that that it could not be long before VW shares also started sliding, following the likes of GM and Toyota. But this did not happen. The reason behind this was revealed on 26th October 2008 when Porsche announced that it controlled almost 75% of all VW shares.Hell broke loose on the trading floors on Monday,and by Tuesday VW shares crossed the 1000 euro mark as short sellers, caught on the wrong foot, desperately tried to cover their positions. In the process, VW now valued at 287 billion euros, briefly became the world's most valuable company.

Hedge funds, hit with losses of almost 30 billion euros, cried foul, prompting an investigation by the German regulator BaFin. Porsche on its part denied any wrongdoing. 'It is the funds themselves that are responsible, with their huge bets on a fall in VW shares that never happened,' a Porsche spokesman said. Porsche further offered to help hedge funds settle their loss making short positions on VW by offering to unwind some of its own positions.

In January this year Porsche announced that it had taken over VW by purchasing more than 50% of its shares. Thereafter in March, Germany's financial regulator BaFin halted its probe into Porsche regarding a possible manipulation in VW shares.'We didn't find any indications for a share manipulation,' said a spokesperson. Now on Wednesday after several weeks of talks, Porsche and VW have announced plans to merge, in the process creating a German car giant and one of the world's largest auto companies.