1/4/2024 0 Comments Volkswagen short squeeze![]() Owing to Porsche’s greed, the company fell short of cash to settle the option contracts at the time of expiry and was not able to acquire 75% of the outstanding shares of Volkswagen to trigger an acquisition. But the sudden upward trend made many traders lose millions worth of investments due to the manipulation done by Porsche. The panic then subsided, and the share price returned to its pre-crisis average trading range of $200. This resulted in a sharp increase in the Volkswagen share price, which reached a high of $999 within a span of a few days. Short sellers panicked and had to pay huge amounts of money to cover their positions in the market. This created a short squeeze in the market. Short sellers were holding a position of 12% of the total shares outstanding for the Volkswagen company, but there was only 6% of shares available for public trading (74% were held by Porsche and 20% by the Lower State of Saxony). Over a span of few years, Porsche acquired around 42% of the outstanding shares of Volkswagen by purchasing them from the open market and also purchased option contracts on the Volkswagen shares amounting to 32% of additional shares resulting in potential holdings of more than 74% of the total shares of the company at the expiry of those options. But a Porsche’s press statement about its holding position in Volkswagen equity hit the financial markets and panic started building up amongst traders. In October 2008, the price of Volkswagen share started representing the weak fundamentals of the industry and saw a downward trend making the short sellers optimistic. But to the short-seller’s misfortune, the share prices of Volkswagen saw an upward curve against the market predictions. In particular, short sellers started taking large sell positions in the stocks of Volkswagen in the expectation of a decrease in prices of the company’s shares. Short sellers started increasing their positions in the auto industry since the auto sales faced a sharp decline after the crisis. As per the rules for mergers and acquisitions, Porsche had to make a mandatory purchase offer to Volkswagen, which was later denied by the shareholders of Volkswagen.Īs the 2008 financial crisis hit financial markets, equity markets throughout the world went into a turmoil. In 2005, Porsche held a 20% stake in the Volkswagen group which later grew to 30% by 2007. Wendelin Wiedeking, the then CEO of Porsche, had dreamt of acquiring the Volkswagen group and started accumulating the shares of the company in order to gain controlling interest in Volkswagen. As per the Volkswagen shareholders’ structure, 20% of the shares of Volkswagen were held by the State of Lower Saxony in Germany while the other 80% were owned by retail and institutional investors. In 2008, Porsche made an attempt to acquire Volkswagen by cornering the shares of the company in a unique manner. It is considered as one of the greatest attempts of cornering ever made in global financial markets. This attempt of cornering made Volkswagen the world’s most valuable company in terms of market capitalization for a brief period. Such a manipulation was seen in 2008 when the world’s famous automaker Porsche tried to corner the market of the shares of Volkswagen. IntroductionĬornering refers to the attempt of manipulating the market by acquiring a significant portion of stocks of a particular company in order to gain a controlling interest in the market and influence the market in the manipulator’s favor. This article written by Akshit Gupta (ESSEC Business School, Master in Management, 2022) presents the real life case of the Corner of Volkswagen, which is a very infamous example of market manipulation in financial markets.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |