Volkswagen Falls Most Since 1989 on Short-Selling

Oct. 20 (Bloomberg) — Volkswagen AG fell the most in almost two decades, counter to a rising German market, as investors short-sold the shares on speculation that the price will decline once Porsche SE gains control of Europe’s biggest carmaker.

Volkswagen’s common shares fell 80.91 euros, or 23 percent, to 277.09 euros, the biggest decline since at least January 1989. The preferred shares lost 3.85 euros, or 5 percent, to 73.10 euros. Short-sellers borrow stock on expectations they can repurchase the shares later at a lower price.

“VW is completely caught in a short-selling frenzy,” said Juergen Pieper, a Frankfurt-based analyst at Bankhaus Metzler who recommends selling the stock. “The share price has been detached from reality for at least six months. These erratic moves lack any fundamental explanation.”

Common shares in Volkswagen have surged 78 percent this year, helped by a 27 percent increase on Sept. 18 when investors bought stock to stem losses on their short-selling strategy. The Sept. 15 collapse of Lehman Brothers Holdings Inc., which lent Volkswagen shares to short-sellers, helped trigger the so-called short-squeeze by forcing the original owners of the stock to buy new shares, people familiar with securities lending said earlier this month.

About 15 percent of Wolfsburg, Germany-based Volkswagen’s common shares as of last month were lent, mostly for short-sales, according to London-based research firm Data Explorers. That was the highest proportion of any company on Germany’s 30-member benchmark DAX Index.

Hedge funds have speculated that the voting rights in the common shares will lose value as Stuttgart, Germany-based Porsche amasses a controlling stake in Volkswagen. The DAX rose 1.1 percent today.

Derivative Contracts

Porsche, the maker of the 911 sports car, owns at least 35 percent of Volkswagen and aims to increase the holding to more than 50 percent by late November. Porsche may have already secured the extra shares through derivative contracts, Deutsche Bank AG analysts estimated in August.

Porsche’s takeover of Volkswagen may take longer than expected as 18 countries have yet to grant antitrust approval, Auto Motor & Sport magazine said yesterday, citing an unidentified Porsche spokesman. Porsche didn’t identify which countries still need to approve the purchase, the magazine said.

To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net; Andreas Cremer in Berlin at acremer@bloomberg.net.

Last Updated: October 20, 2008 12:35 EDT
By Alexis Xydias and Andreas Cremer

Source: Bloomberg

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