Porsche vs. VW-What went wrong for Porsche?

For long Porsche had been a niche player in the world automobile market producing popular sports cars. It was also one of the most profitable auto companies. It then hit upon the daring idea of taking over VW, the largest European automaker, a company almost fifteen times its own size. For years it quietly built up its shareholding in VW till it reached a little over 50%. It also purchased options for an additional 20% of the shares in VW. How they managed to keep their moves and intentions secret is a mystery which is unlikely to be solved anytime soon.

Speculators,intrigued by the stability in the price of VW shares went short on a large scale. They took it on the chin to the tune of about 30 billion euros after Porshe announced that it controlled almost 75% of all VW shares. For a brief period VW became the world's most valuable company as short sellers scrambled to cover their short positions and VW's share price soared to over 1000 euros. The German regulator BaFin concluded an inquiry into possible share price manipulation by Porsche in the company's favor.

Now all of a sudden the boot's on the other foot. Porsche has agreed to be taken over by VW! What went wrong for Porsche? Following the collapse of Lehman Bros. all kinds of credit simply dried up,especially for the kind of adventure undertaken by Porsche. The economic crisis and the collapse of the auto industry in particular only made things worse. Porsche found it could not profitably hold on to its options and other investments. Additional finance was simply not available. Now it's burdened with about nine billion euros in debt and may have to bring in almost five billion euros in additional capital before merging with VW. The middle east is once again the beneficiary of this financial misadventure. The Sheik of Qatar is rumored to be putting in about seven billion euros in return for a seventeen percent stake in VW, making him its third largest shareholder.
As for the two Porsche executives who masterminded this gamble, their CEO Wendelin Wiedeking and the CFO Holger Haerter, they have been shown the door. They will not leave empty handed though. Wiedeking will receive a fifty million euro payoff while Haerter will receive twelve and a half million. They may receive additional money through other agreements or bonuses.
VW plans to merge Porsche fully with itself by mid 2011.