Volkswagen share frenzy

PORSCHE sent the German stock exchange into chaos last week after it announced that it had secretly taken an effective 74.1 per cent shareholding in Volkswagen AG, which was once its parent company.

With the state of Lower Saxony holding a legislated 20 per cent in VW, investors went into a buying frenzy over the few remaining shares, forcing the German exchange to step in to protect the integrity of the DAX index.

VW share prices soared to almost five times their previous value in just 48 hours – at one point making VW the most valuable company in the world, ahead of US oil giant Exxon Mobil.

After briefly tipping over €1000 ($A1870) per share on Tuesday, October 27 as short-term speculators moved in, they closed the day at a record €945 ($A1770) compared with only €210.85 ($A394.10) prior to the weekend.

That prompted the Deutsche Boerse stock exchange to take the “extraordinary measure” of capping VW’s weighting on the DAX at 10 per cent from November 3, down from its previous 27 per cent.

However, the VW share price halved on Wednesday and this week they were trading at €393 ($A735).

What started the volatility in the market was Porsche AG’s announcement on Sunday 26 October that it had not only increased its holding of VW ordinary shares to 42.6 per cent – up from the 35.8 per cent it reached in September – but also held 31.5 per cent in convertible options that it was not compelled to disclose previously under German law.

Furthermore, Porsche said it aimed to increase its holding to 75 per cent in 2009 if economic conditions were suitable, thereby “paving the way to a domination agreement”. Reaching 75 per cent would give Porsche full financial control of VW and access to its cashflow.

On the previous Friday (October 24), Porsche president Wolfgang Porsche addressed employees in Stuttgart, admitting that public discussion about the VW takeover had led to widespread “irritation” in Germany, including with Porsche staff and union representatives, who are at loggerheads with management.

He explained that the Porsche and Piëch families that own the company had held a meeting the previous weekend and agreed that they fully support the management moves led by executive chairman Wendelin Wiedeking.

Significantly, Dr Porsche said that this includes the unreserved support of his cousin, Ferdinand Piëch, who is the chairman of the VW supervisory board.

Obviously Dr Piëch is in a difficult situation given the bitterness that has developed between the once-close car-makers, as evidenced by Porsche noting that the VW supervisory board had in September decided to create “a committee for special business relationships” in Dr Piëch’s absence.

“This committee has been legally examined with the conclusion that it encroaches too much on the competences of the VW board,” said Dr Porsche. “That’s why Ferdinand Piëch will request the dissolution of this committee at the next VW supervisory board meeting.”

Porsche no longer depends on selling cars for its financial wellbeing, which is just as well because the brand has been hit hard by the economic downturn in North America. Sales in October were down some 39 per cent for the US and Canada against the same month last year.

Read more:

Porsche gains control of VW and gets its hands on Audi

Porsche raises VW stake