Mark Harris

Edit:

http://radian.org/notebook/porsche

nile13

Something is very fishy in this story. One of the things that is completely missing any mention is a German law that requires a takover attempt if someone owns more than 30% of company's stock. The other thing is that shorts usually don't _have to_ buy the stock back by any specific date.

Please correct me if I'm wrong.

Smiles

Mark,

Did you write this? If so, there are some things missing in the pressures Merckle felt. The concrete business and other partners.

A NYT article that only scratches the surface:
http://www.nytimes.com/2009/01/07/bu...ckle.html?_r=1

If you didn't write it, you should give credit to whoever did.

Thanks for posting it,

Matt

FGL28

Great explanation!

Sounds like Meckle and the Hedge Fund guys were the fish in that poker game.

I really have no sympathy for those who were trying to make a quick Euro over VW. They are big boys and should know the risks. They just got too greedy. As for the NYT article unless they were personally at all the meetings then I fear a fair amount of the article is conjecture and third hand reconstruction by those who have an ax or Euro to grind.

Mark Harris

I didn't write it and by no means did I intend for it to appear that way. Instead of posting the link, I just quickly cut and pasted it.

Next time I will be more careful. No harm intened. Just wanted to share an intersting article.

http://radian.org/notebook/porsche

dlambert

It was my understanding that Porsche was buying call options to keep from having to declare their intentions which they would have to do if buying stock. Options expire and 5 days before expiration owners have to declare if they intend to exercise them and purchase the stock. Since most of these calls were out of the money ie cheaper to just buy the stock on the open market the option writers did not expect them to ever be exercised. When Porsche put billions on the table and said they wanted stock the option writers had 5 days to purchase stock to deliver. There is a reason they call it naked shorting when you write calls. You are agreeing to deliver on a fixed date at the strike price something you don't own. Good for Porsche not for those that thought they were smarter.

geolab

Mike you are right. P had 29.5 % shares and was not allowed to purchase more until new laws for rescue plans were issued for the financial crises.
You do not have to physically buy back stocks to cut a short (seller) position, you just tell your broker to buy the relative selling price on the market at a specific price. You can ask to be delivered the paper if you purchase, but usually you take the profit or loss in money terms, not the paper as a paper.
Short squeeze is when you have a seller position (short), and 'risk position monitoring' and margin payments exceed your finances and obliges you to place a CUT order in the market, to limit your loss if the market goes opposite to your expectations.
When Porsche started purchasing up to their 29.5 %, they were squeezed a little because VW price reached an over-priced stock level, and Porsche did not pay cheap at that moment.
So everybody took a seller position because Porsche was not allowed to purchase more by law.
With the financial crisis, VW short people were smiling because surely dropping stock indexes were to drag VW shares down. Then the financial laws were softened by the governments, and some laws came to forbid selling and thus Porsche with a few VW share purchases, triggered huge purchases in form of cutting positions, etc etc
When the price moves drastically, it starts triggering those stop orders. Some people manipulate the market knowing this because stop orders usually are greater than market liquidity and could explode the price, or crush it.
ATM Calls or Puts have a specific maturity date and hour. Across the globe, you have around 30-45 minutes to declare if you want to be excersised or not, if your options are around the futures price, and not five days.

nile13

Geolab, thanks for the explanation.

My head hurts There is a reason why I pulled out of the market completely in 2007. I can't stomach what's going on. I prefer to sleep at night. The complexity of the deals and underlying inside info that we are not aware of made me think that it's a losing game. Good for Porsche, though, they got reach. Bad for Merckle and his investors.

FGL28

Geolab,

Nice further explanation of the issue. But you forgot to mention that Porsche had stellar legal advice and a plan to counteract the hedge funds moves. They did not go into this recklessly and played to win. In addition I feel that, unlike speculators, Porsche will add value to VW and their associated brands.

Correct me if I am wrong but if you buy another company aren't you supposed to add value?