Porsche Faces Angry Hedge Funds, General Malaise

Porsche are due to face the renewed wrath of the hedge funds they wronged with their VW trade last year, as it emerges that VW wasn’t the only stock they dabbled with – they generated another €392m in revenue from trades last year in a variety of other companies.

You may remember that Porsche revealed that it owned the majority of the common stock of VW, sending the price of the rest through the roof (with VW staff cashing in their personal stakes and presumably buying really nice summer houses). This wasn’t what some hedge funds thought would happen – fair enough, considering the state of the car industry post-recession – and they lost big through short selling. One of the biggest losers was Adolf Merckle, who went on to commit suicide amid the ruins of his business empire.

Now the fact that this trade by Porsche wasn’t the only time they’ve played the markets to their advantage means that their opponents are calling them a speculator rather than a company, potentially adding weight to allegations of market manipulation, over which Porsche are already being investigated by financial watchdog Bafin.

Frankly, it sounds awfully like sour grapes from the loss-making hedge funds, though they may have the last laugh even if their legal challenges don’t amount to anything. It’s not known how heavily Porsche is leveraged over their acquisition of the VW stake, but we do know they bought the shares at €117 each. That looks favourable when you see that the current share price is nearly €250, but compare it with that of other European car companies this morning: Renault: €16.33. Peugeot: €14.68. Fiat: €4.38. As the FT notes, VW haven’t ruled out a loss for the first quarter – their own sales are faltering, Audi sales are down, Porsche too, with only Skoda proving a success over the last couple of quarters. Give them a year or so in the current climate, and that share price could easily dip below what Porsche spent.

Porsche were legally obliged to buy out Scania after the VW buyout, but that deal has gone through without a hitch – they’ve passed on the shares to VW for the same price they bought them for. What’s more worrying is having to sort out the refinancing of a €10bn loan in less than a month, which even if they manage they’ll still face major increases to their rates of interest, which they’ll pay for… how? 

According to an analyst that the FT spoke to, Porsche had €31bn in stock liabilities last summer. Considering they’re dealing in a product that people are buying a lot less of these days, they could be the next company to have overextended and overexposed themselves at just the wrong time. Still, at least they can go and look back on the good times in their new museum. I can see their CEO Wendelin Wiedeking stumbling around it at night, drunk and Kane-like, stroking an 80’s 911 before shouting incoherently about oil prices and recession…

Posted by Ben Beaumont-Thomas in Hot Money | February 16, 2009 11:32AM |