Volkswagen’s shares more than doubled on Monday after Porsche moved to cement its control of Europe’s biggest carmaker and hedge funds, rushing to cover short positions, were forced to buy stock from a shrinking pool of shares in free float.
VW shares rose 147 per cent after Porsche unexpectedly disclosed that through the use of derivatives it had increased its stake in VW from 35 to 74.1 per cent, sparking outcry among investors, analysts and corporate governance experts.
Shares in VW closed up €309.15 at €520, giving it a market capitalisation of €153bn, more than all the other US and European carmakers put together.
The FT has the full story, hat tip MR.
Merv is surprised a hedge fund hadn't pulled this one over other hedge funds in the past (although granted, it would need to be on something smaller than VW). I am surprised too, but who knows - maybe someone somewhere has just updated their bag of tricks.
Does any reader know what happens if you have borrowed shares to short and *can't* give them back?
Postscript: There's something about the commentary on the financial crisis that reminds me of sports interviews; firstly, the lack of content and repetition of cliches, secondly the use of language:
“This was supposed to be a very low-risk trade and it’s a nuclear bomb which has gone off in people’s faces,” said one hedge fund manager.
If it's a nuclear bomb it doesn't need to go off in your face, and if it goes off in your face it doesn't have to be nuclear.