Volkswagen / Porsche

The short-sellers have guts. Despite being pulverised in last autumn’s short squeeze on Volkswagen ordinary shares – when Porsche suddenly revealed it had options to increase its VW stake from 50 to 70 per cent – they are back for another round. Short interest in VW has doubled since June, according to Dataexplorers. But the shorts’ bet looks safer this time. For months, VW ordinaries had floated around €240 a share, way above any conceivable fair value thanks to Porsche’s options and the resulting stock shortage. Now, they are crashing to earth, down 40 per cent since details last week of VW’s compromise merger with debt-laden Porsche.

The trigger was Porsche. As part of last week’s deal, it sold 10 per cent of itself and most of its VW options to Qatar Holding. The Qataris plan to exercise options over 17 per cent of VW’s shares. Hence VW’s free float, which had technically been almost 27 per cent, drops below 10 per cent, probably knocking the shares out of Germany’s DAX index and reducing their Euro Stoxx index weighting by two-thirds. Cue selling by index and benchmark funds. Meanwhile, Qatar Holding paid €80 per share for its options – roughly what analysts consider fair value. The shares will probably slide towards that level.

VW’s non-voting preference shares, by contrast, have been climbing – partly on speculation that, after long playing second-fiddle to the voting shares, they could now replace them in the DAX. That could reduce their average historical discount to the ordinary shares. The biggest gainers, however, have been Porsche shares, after VW revealed the hefty price it would pay for Porsche assets. Porsche’s controlling families have seen ambitions to control VW thwarted. But, set to emerge debt-free and with perhaps 40 per cent of the combined VW/Porsche, they may not have done too badly after all.END