The German luxury sports-car maker Porsche tried to mitigate damage to its reputation among City investors yesterday when it offered to unwind agreements guaranteeing it ownership of 5 per cent of takeover target Volkswagen, to help hedge funds settle their loss-making short positions.
After pushing short-sellers to the brink by announcing on Sunday the stealthy amalgamation of a 74.1 per cent stake in rival Volkswagen, causing a fourfold increase in its share price, Porsche tried yesterday to take the sting out of the market, and Volkswagen shares lost almost a fifth of their value. But in a move reminiscent of hedge-fund tactics, Porsche is still set to make money from unwinding itspositions, as the shares are worth three times their value last week.
Separately, German stock market regulator BaFin launched a formal inquiry late yesterday into possible market manipulation or insider dealing around trading of VW shares in recent days. BaFin had started an informal probe on Tuesday.
Yesterday, Porsche offered to unwind some of the complex derivative agreements it has used to secure more VW shares, freeing up as much as another 5 per cent of VW shares. The company holds almost 43 per cent of VW's stock outright and has signed contracts allowing it to buy anther 31.5 per cent.
"We are trying to reduce the losses for those who are short, and if the [VW] share price cools down that should help all of us," said a Porsche spokesman.
"This has not been done to make money; we have no interest in putting VW on our balance sheet at unreasonable prices, and if the market eases that should help the community." Porsche was adamant it remains committed to buying up at least 75 per cent of Volkswagen to gain tighter control of the company. But it wants to see the share price fall before buying more shares.
Hedge funds that take up Porsche's offer will still lose money because they had bet the shares would fall below last week's levels. But they will at least be able to quantify their loss and draw a line under the episode. Porsche, which bought control of the shares before their spectacular rise, could nevertheless make a profit. As the dust starts to settle, the search goes on for the hedge funds that have lost most in the debacle, which could have cost the industry as much as $20bn.
Among those known to have lost money is Marshall Wace, the hedge fund controlled by Liberal Democrat supporter Paul Marshall and colleague Ian Wace, but it has lost only about €5m (£3.9m).Reuse content