Volkswagen Overtakes Exxon as World's Most Valuable Company
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10-28-2008 | 07:00 AM
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Volkswagen Overtakes Exxon as World's Most Valuable Company
Volkswagen Overtakes Exxon as World's Most Valuable Company
By Alexis Xydias
Oct. 28 (Bloomberg) -- Volkswagen AG became the world's biggest company by market value after Porsche SE announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers.
Volkswagen rose as much as 485.01 euros, or 93 percent, to 1,005.01 euros and was up 89 percent as of 9:55 a.m. in Frankfurt trading. Porsche said it will increase its holding from 42.6 percent, prompting some short-sellers to buy from a shrinking pool of stock to end their bets. Volkswagen has risen more than sixfold this year, valuing it at 294 billion euros ($367 billion), more than Exxon Mobil Corp.'s $343 billion market value at yesterday's close, according to data compiled by Bloomberg.
Porsche, the maker of the 911 sports car, has accumulated Volkswagen shares since 2005 to protect ties to its biggest supplier. Wolfsburg-based Volkswagen's gain came as 28 of the 29 other stocks in Germany's benchmark DAX Index fell on investor concern that a slowdown in the global economy is accelerating.
``One of the biggest risks with the herd mentality approach to shorting is that a lot of money can be made on the outset,'' said Ed Oliver, a senior business consultant at Spitalfields Advisors, a London-based firm specializing in securities lending. ``But you can end up losing the whole of it when you try to close the position. There's no limit.''
About 12.9 percent of Volkswagen's common stock was on loan as of Oct. 23, mostly for short sales, the highest proportion of any company on Germany's benchmark DAX Index, according to London-based Data Explorers.
Purchases Since 2005
The Stuttgart, Germany-based company said Oct. 26 that it had added to an earlier 35 percent stake and holds options for another 31.5 percent.
``Porsche heads for a domination agreement and triggers a short-squeeze,'' Horst Schneider, an HSBC Holdings Plc analyst in Dusseldorf, Germany, wrote in a report yesterday, in which he upgraded Volkswagen's common shares to ``neutral'' from ``underweight.'' The stock ``will be more driven by covering of short positions rather than by fundamental valuations.''
Carmakers worldwide are struggling with plunging sales as credit markets seize up and economies contract, deterring consumers from making large purchases. U.S. industry-wide auto sales fell 27 percent in September, the steepest monthly slide since 1991, while nine-month deliveries in Europe declined 4.4 percent as September sales dropped 8.2 percent.
Ratings Cut
PSA Peugeot Citroen, Europe's second-biggest carmaker, and smaller French competitor Renault SA both had their credit ratings downgraded by Moody's Investors Service because of the risk that car markets won't recover next year. Standard & Poor's said it may cut the credit rating of Fiat SpA, Italy's largest carmaker, to less than investment grade.
Until yesterday, Volkswagen's biggest gain in almost two decades was a 27 percent jump on Sept. 18. People familiar with securities lending said at the time that the collapse of Lehman Brothers Holdings Inc. caused the increase by triggering recalls of borrowings. The stock fell 23 percent on Oct. 20, the biggest drop also in almost two decades, as short-sellers predicted the price would decline once Porsche gains control.
There may be little ordinary stock freely trading in Volkswagen because most of the shares are owned by Porsche, the German state of Lower Saxony and the banks that underwrote Porsche's options, Adam Jonas, a London-based analyst at Morgan Stanley, wrote in a research report yesterday. Lower Saxony is Volkswagen's second-biggest owner with a 20.1 percent stake.
Index-tracking funds also hold stakes in Volkswagen, now the DAX's most-weighted stock, and must retain the holdings as long as the carmaker remains a member.
`Not Realistic'
Until Oct. 26, Porsche had said it was aiming only for a stake exceeding 50 percent, and Chief Executive Officer Wendelin Wiedeking said at the Paris Motor Show early this month that a stake of as much as 75 percent would be ``not realistic'' because of market turmoil.
Short sales have largely been undertaken by investors betting on a decline in Volkswagen's common stock, which hold voting rights, or its underperformance relative to the preferred shares, which carry no votes, according to analysts.
The common shares, which outnumber the preferred equity almost three to one, are the only gainers this year on either the DAX or the nine-member Bloomberg Europe Autos Index. In contrast, Volkswagen's preferred stock has dropped 62 percent, including a 14 percent decline yesterday, to 37.89 euros.
``Volkswagen has been one of the greatest shorts of hedge funds, and it's been an absolute, absolute disaster,'' Emmanuel Roman, co-chief executive officer of GLG Partners Inc., said at a conference in London on Oct. 23.
``It's been very painful.'' GLG didn't participate in short-selling trading of the carmaker's common shares, he said.
By Alexis Xydias
Oct. 28 (Bloomberg) -- Volkswagen AG became the world's biggest company by market value after Porsche SE announced plans to raise its stake in the German carmaker to 75 percent, triggering demand from short-sellers.
Volkswagen rose as much as 485.01 euros, or 93 percent, to 1,005.01 euros and was up 89 percent as of 9:55 a.m. in Frankfurt trading. Porsche said it will increase its holding from 42.6 percent, prompting some short-sellers to buy from a shrinking pool of stock to end their bets. Volkswagen has risen more than sixfold this year, valuing it at 294 billion euros ($367 billion), more than Exxon Mobil Corp.'s $343 billion market value at yesterday's close, according to data compiled by Bloomberg.
Porsche, the maker of the 911 sports car, has accumulated Volkswagen shares since 2005 to protect ties to its biggest supplier. Wolfsburg-based Volkswagen's gain came as 28 of the 29 other stocks in Germany's benchmark DAX Index fell on investor concern that a slowdown in the global economy is accelerating.
``One of the biggest risks with the herd mentality approach to shorting is that a lot of money can be made on the outset,'' said Ed Oliver, a senior business consultant at Spitalfields Advisors, a London-based firm specializing in securities lending. ``But you can end up losing the whole of it when you try to close the position. There's no limit.''
About 12.9 percent of Volkswagen's common stock was on loan as of Oct. 23, mostly for short sales, the highest proportion of any company on Germany's benchmark DAX Index, according to London-based Data Explorers.
Purchases Since 2005
The Stuttgart, Germany-based company said Oct. 26 that it had added to an earlier 35 percent stake and holds options for another 31.5 percent.
``Porsche heads for a domination agreement and triggers a short-squeeze,'' Horst Schneider, an HSBC Holdings Plc analyst in Dusseldorf, Germany, wrote in a report yesterday, in which he upgraded Volkswagen's common shares to ``neutral'' from ``underweight.'' The stock ``will be more driven by covering of short positions rather than by fundamental valuations.''
Carmakers worldwide are struggling with plunging sales as credit markets seize up and economies contract, deterring consumers from making large purchases. U.S. industry-wide auto sales fell 27 percent in September, the steepest monthly slide since 1991, while nine-month deliveries in Europe declined 4.4 percent as September sales dropped 8.2 percent.
Ratings Cut
PSA Peugeot Citroen, Europe's second-biggest carmaker, and smaller French competitor Renault SA both had their credit ratings downgraded by Moody's Investors Service because of the risk that car markets won't recover next year. Standard & Poor's said it may cut the credit rating of Fiat SpA, Italy's largest carmaker, to less than investment grade.
Until yesterday, Volkswagen's biggest gain in almost two decades was a 27 percent jump on Sept. 18. People familiar with securities lending said at the time that the collapse of Lehman Brothers Holdings Inc. caused the increase by triggering recalls of borrowings. The stock fell 23 percent on Oct. 20, the biggest drop also in almost two decades, as short-sellers predicted the price would decline once Porsche gains control.
There may be little ordinary stock freely trading in Volkswagen because most of the shares are owned by Porsche, the German state of Lower Saxony and the banks that underwrote Porsche's options, Adam Jonas, a London-based analyst at Morgan Stanley, wrote in a research report yesterday. Lower Saxony is Volkswagen's second-biggest owner with a 20.1 percent stake.
Index-tracking funds also hold stakes in Volkswagen, now the DAX's most-weighted stock, and must retain the holdings as long as the carmaker remains a member.
`Not Realistic'
Until Oct. 26, Porsche had said it was aiming only for a stake exceeding 50 percent, and Chief Executive Officer Wendelin Wiedeking said at the Paris Motor Show early this month that a stake of as much as 75 percent would be ``not realistic'' because of market turmoil.
Short sales have largely been undertaken by investors betting on a decline in Volkswagen's common stock, which hold voting rights, or its underperformance relative to the preferred shares, which carry no votes, according to analysts.
The common shares, which outnumber the preferred equity almost three to one, are the only gainers this year on either the DAX or the nine-member Bloomberg Europe Autos Index. In contrast, Volkswagen's preferred stock has dropped 62 percent, including a 14 percent decline yesterday, to 37.89 euros.
``Volkswagen has been one of the greatest shorts of hedge funds, and it's been an absolute, absolute disaster,'' Emmanuel Roman, co-chief executive officer of GLG Partners Inc., said at a conference in London on Oct. 23.
``It's been very painful.'' GLG didn't participate in short-selling trading of the carmaker's common shares, he said.
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