The Porsche Dilemma: Firesale Or Bankruptcy

The Porsche drama has morphed into a full blown tragedy: Porsche has until Monday to decide whether it is willing to accept what is essentially a firesale bid by Volkswagen and Lower Saxony for 49% of the company in exchange for €3-4 billion. As a result of the transaction, the two companies would merge, with the Piech and Porsche controlling a 40% stake, Lower Saxony owning 20%, Qatar 15%, and a separate state fund having a 5% stake. Qatar has made it clear that it would only participate in a deal that involves all the listed parties and will not be last ditch white knight. If Porsche does not accept by Tuesday, the deal will be pulled, and Porsche will have to pay back a €700 million loan to VW.



Source: Spiegel, hat tip Doru Sphere: Related Content

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Daimler Set To Purchase Porsche Stake

The latest development in the Porsche-Volkswagen saga comes courtesy of German Manager-Magazin, which notes that Daimler is apparently in advanced negotiations to acquire a stake in the troubled luxury carmaker. It was still unclear what happened with the massive VOW options held by Porsche ahead of expiration today: as the company did not have the money to exercise them earlier, one can only hope that Porsche scrambled enough cash to at least roll the options.

It is only fitting to use Google's bizarro Yoda translator to provide the latest piece of information in this most ridiculous of corporate soap operas.

Negotiations on joining Porsche

The carmaker Daimler negotiates informed manager magazin with Porsche on a career in the sports car manufacturer posted. The talks are at an advanced stage. Daimler would thus indirectly also to participate in Volkswagen.

Hamburg - The automotive group Daimler is considering a stake in the competitor Porsche. The talks would be at an advanced stage, such as manager-magazin.de has experienced. Daimler CEO Dieter Zetsche and Porsche Chief Executive Wendelin Wiedeking had the potential options of a career already discussed at the end of May, it was in financial circles. The discussion is therefore that Daimler has a capital increase shares of Porsche SE will.

Daimler would thus indirectly also to Europe's biggest carmaker Volkswagen join. Porsche holds 50.8 percent of the voting rights in VW. The group had with the acquisition, however verhoben and is looking urgently for investors. Parallel negotiations Porsche boss Wiedeking also with the Emirate of Qatar on various possibilities of a career.

It is also possible that a package Daimler Porsche VW options decline, experienced manager-magazin.de from financial circles. About the options Porsche has secured the opportunity to make further approximately 25 percent of Volkswagen's shares at a fixed price to buy. Porsche but lacks the money, the options and make up the shares to pay.

In the past week were leading members of the families Porsche and Piëch taken in Salzburg. The clan includes 100 percent of Porsche shares. Wiedeking asked the families to agree, a portion of the shares to outside investors must. He is not appealed to a particular investor notes. The participants initially refused their consent. The families will be available early next week to a further meeting to come together.

Coming soon to a Park Avenue showroom near you - Porsche C63 AMG GT3. Also, might be a good time to check out those DAIGR CDS. Sphere: Related Content

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Porsche Still Scrambling To Raise Cash, Offers Qatar €2.5 Billion Stake

Zero Hedge favorite soap opera extraordinaire is about to enter the final season. Porsche, which as we noted in the past doesn't have either the cash to exercise its massively profitable Volkswagen options, nor the cash to actually stave off bankruptcy for long, has bypassed the hedge fund investor rescue route completely (no surprise there) and instead is trying to sell an unknown stake (likely at least 25%) to the Qatar Investment Authority. Quote Bloomberg:

Stuttgart-based Porsche may conclude an accord with Qatar by the end of June, said the two people, who spoke on condition of anonymity because the discussions are private. Negotiations about the sale, held exclusively with the Persian Gulf state, are proceeding “in a good atmosphere,” said Porsche spokesman Albrecht Bamler. He declined to comment on a price.

Qatar wants to buy at least 25 percent of Porsche, the people said. A transaction would help Porsche alleviate its 9 billion euros in debt amassed with the purchase of a controlling stake in Volkswagen. Qatar would gain a say in company strategy, marking the first time in Porsche’s 78-year history that the controlling Porsche and Piech families have ceded some control.

Angela Merkel's reaction to selling a substantial stake in the most prominent German carmaker to a gulf state was not captured, but even if it was, it probably would be sufficiently NSFW to make neither Bloomberg, nor abundantly politically correct Zero Hedge, republish it.

Speaking of the European automaker collapse, how are those VOW, POR, and CONTI CDS doing these days? All time tights yet? One really has to admire the solid prospects M3's and Cayennes face (not to mentione tire and drivetrain manufacturers) as consumers max out the remaining balance on their Capital One credit cards.

But anyway, for the answer to these questions and more, as well as keeping an intimate track of all daily CDS moves, we recommend readers check out a brand new service launched by Markit that will likely put half the premium content providers in CDS land out of business, and hopefully quite a few TARP recipients as well. Sphere: Related Content

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Karma Is A Bitch v2

Brand new development in the Porsche saga, and this one could easily be the last nail in the coffin of Porsche Capital Management LLC. Bloomberg is reporting that the $24 billion of paper profits that Porsche generated as a result of the Volkswagen short squeeze may be in jeopardy because the company, which as Zero Hedge reported previously, does not have the cash not only to roll its impending €2.5 billion term loan, but also the money to exercise these very options. Per Bloomberg:

Porsche bought options and Volkswagen stock for more than three years and controls more than 70 percent of Europe’s biggest automaker. Now, Stuttgart, Germany- based Porsche may be unable to raise the money needed to cash in the options, according to research by Sanford C. Bernstein & Co., Sal. Oppenheim jr. & Cie. and FAIResearch GmbH & Co.

What is even more scary for both Porsche and VOW shareholders, is that as the market smells Porsche's weakness, VOW shares are poised to plummet as the only artificial barrier holding them up is now gone.

“The smartest guys in the room are running out of options,” Max Warburton, a London-based analyst at Bernstein, said in an e-mailed message May 19. “We no longer believe Porsche is in a position to control the VW share price and are increasingly convinced that the VW ordinary shares will collapse.”

While Porsche spokesman Frank Gaube on May 21 insisted that the company is "not in a risk situation," the odds are starting to stack against it: first, none other than its own merger partner VW is demanding "transparency" in Porsche' holdings, and second, a slew of hedge funds that saw their P&L plummet as a result of the squeeze will be waiting in the corridors with a whole arsenal of cloaks and daggers to inflict as much pain as possible on the company, whether it is by shorting its stock, or purchasing its CDS and making refi's even more expensive on a matched basis.

The main issue for cash strapped Porsche is that while it has a tremendous cache of "paper"profits on its book, it needs almost €6 billion to exercise its 20% stake in VOW common stock.

Exercising options on 20 percent of VW’s 294.9 million outstanding shares at the strike price estimated by analysts would require 5.9 billion euros, according to data compiled by Bloomberg. The 20 percent stake would have a market value of 14.1 billion euros, based on yesterday’s price.

Unfortunately for Porsche, this is money that it does not have, or rather, that it would have access to, if the credit capital markets allowed it to refinance its secured debt. The way it stands, the company is caught in a Catch 22, where all its stock-based profits, which Porsche already has booked in its corporate earnings, may have to end up being forfeited. Ironically, the only realistic way out for the company now is if an investor, a hedge fund for example, were to lend it the needed money so that it could actually exercise its deep in the money options. However, after the mockery that Porsche made with the capital markets in October, they may as well not wait for the phone to ring.

And last but not least if Porsche lets the options expire worthless, banks that underwrote the calls would be forced to sell VW common shares they bought as insurance, lowering the stock, and potentially causing a lot of pain for the CFOs of both companies.

All in all, the Volkswagen soap opera is developing with just the right amount of drama, and it is safe to say that the Loebs and the Robbinses of the world are just watching this one from afar... and gloating. Sphere: Related Content

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Karma Is A Bitch

Porsche, which last year thought its "hedge fund" division was smarter than all the actual hedge funds in the world and with the implicit complicity of the BaFin created the Volkswagen squeeze monster, might very soon be at the mercy of the same hedge funds it nearly guillotined.

As Zero Hedge reported, the failed merger between it and Volkswagen (so much for domination), is likely going to be just the beginning of the company's problems. The first thing Porsche has to be worried about is the fact that it will now be unable to secure a credit rating for itself by the time the self imposed May 31 deadline rolls. The company, which had recently been exclusively focused on containing the failed merger fallout, kinda forgot that absent a credit rating, the spread on its existing €10 billion loan will increase by 100 bps to EURIBOR + 425: 1% on 10 billion is not something to sneeze at.

A report by Loan Pricing Corporation cites a Porsche spokesman who said "It makes no sense at the moment to try to get a rating."

Amusingly, bankers who were stuck holding the massive loan, had hoped the 100 bps penalty would be sufficient incentive for the company to push for the rating, which would in turn allow it to refinance the loans with a bond issue. As it stands, the banks will end up holding a whole lot of secured loans, which, if Angela Merkel has her way, will get the same "super priority" treatment as secured lenders just got in the Chrysler bankruptcy.

Not only this, but additionally Porsche was expecting to raise an additional, and much needed, €2.5 billion loan by the end of May, which plan is now also on the scrap heap - according to bankers the car company has only managed to generate interest for €750 million of the total amount, which will also now likely be pulled as the expected merger is prematurely over.

As Porsche has managed to make a lot of friends in the hedge fund community, it is unable to solicit even usurious indications of interest from a rescue financing source: although, it would be very amusing to watch Dan Loeb or Larry Robbins lend Porsche €2.5 billion at a 150% rate (with a 200% cash flow sweep).

Instead, Porsche said on Tuesday that it was holding "promising talks" with a potential Middle East investor. Then again, Dubai is in such a flourishing economic condition, that it likely cant wait to hit "accept" on the fund flow button and hand over its last semblance of liquidity.

Just goes to show, that on Wall Street, no massive short squeeze goes unpunished...And also to think twice before you burn all bridges with the hedge fund community...The last is particularly relevant for Mr. Steven Rattner. Sphere: Related Content

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The Porsche Drama Comes Full Circle

A report out of Reuters will be the final nail in all those shareholders who got caught with their pants down when Porsche announced its intention to "dominate" Volkswagen, which caused a insane squeeze when it became obvious there were not enough shares in the float to cover all the shorts.

Well, turns out all that was for nothing, and due to the massive capital crunch at both companies, the likely outcome now is that it was all total posturing, as was widely expected by all hedge funds, and the likely outcome is either a merger of equals or the two companies soon going their jolly separate ways.

(LON) Porsche drops goal of dominating VW - sources

May 6, 2009 - Porsche Automobil Holding SE has abandoned its target of reaching a 75 percent majority holding in Volkswagen AG, sources familiar with the matter told Reuters on Wednesday.

Porsche said in early January it controls about 51 percent of Volkswagen's voting shares and has repeatedly said it wants to raise its stake to 75 percent this year should economic conditions allow.

"Porsche needs a different solution," said one person familiar with the discussions.
Porsche had no comment. Its controlling shareholders were meeting on Wednesday to discuss how to handle the 9 billion euros ($11.98 billion) in net debt it built up for the takeover.

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Why The Upcoming Porsche Refi Could Cause A Spike In Its Risk Profile

One of the more notable market rumors from yesterday was Porsche's attempt to raise an additional €2.5 billion on top of the €10 billion it managed to scrape together in the eleventh hour at the end of March, the failure of which would have resulted in a technical default. Allegedly, the €2.5 billion will be raised at a spread of 325 over LIBOR, a far cry from the 200 bps the company had been hoping on for the entire €12.5 refi earlier on. Both the core and the add on portion of the loan contain pricing step ups to encourage refi participation and to obtain a credit rating, as well as provide Volkswagen shares as security on the €10 billion loan.

Porsche expects to obtain a rating at the end of May, at which point it will likely immediately refi the €6 billion portion of the loan which has a 1 year maturity, with new bonds. Additionally, the VOW stock collateral will fall way once the company is rated.

There is little guarantee the company will be able to access the bond market in May, if at all, especially considering the extremely fragmented nature of its loan syndicate which will likely be the same underwriters on any upcoming bond issues, and consists of a who's who of European distressed banks: Barclays Capital, Commerzbank, LBBW, Deutsche Bank, UBS, Credit Suisse, Santander, BayernLB, BNP Paribas, Calyon, UniCredit/HVB, Helaba, Intesa, WestLB and DZ-Bank. As current lenders and potential future bond holders evaluate the risk profile of the company, it is likely that many will establish preemptive basis trades to protect against a possible downturn in the automaker, by purchasing CDS, which over the past 4 months have been surprisingly resilient in the face of the total obliteration of all other auto companies.



In the meantime, the company is still reveling in the huge cash shortfall it generated from the Volkswagen short squeeze, although the longevity of the cash buffer is questionable, especially if the premium segment of the car space becomes more and more adversely impacted by the spreading recession.

disclaimer: no position in porsche securities. Sphere: Related Content

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Porsche Capital LP Gets The Nitrous Boost

The world's most profitable hedge fund, which also makes luxury cars on the side, just reported its H1 2009 results. Porsche, which generated a total of 6 month revenue from car sales of roughly EUR 3 billion, made more than double that, or EUR 6.8 billion, through the company's hedge fund which executed the most clockwork-like and illegal short squeeze in recorded history. In the linked filing, the total amount of hedge fund carnage recorded in those october days is presented on page 5. Too bad the update does not come with a subscription agreement: maybe the hedge funds that got blown away by BAFIN and POR can put what money they have left in the Carrera maker. Sphere: Related Content

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Larry Will Be Happy To Read This

Porsche may be in technical default by midnight. Granted the chances are slim but it would be a fitting conclusion to Volkswagen squeeze saga. The company has a €10 billion loan refinancing due by midnight and is currently scrambling to find last minute cash to complete the deal. Market sources say the automaker has only managed to obtain €8.55 billion in commitments from banks and is facing a €1.45 shortfall. Unless banks cough up the balance, Porsche will be forced to fund the difference out of its own cash. Luckily the company does have a lot of it, compliments of many hedge funds, but that action would not be perceived well by the capital markets. Then again, the company may have no choice as a failure to refinance will lead to a technical default on the term loan, although the last thing we would advise here is to short Porsche. Sphere: Related Content

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Financial Companies' Stock Borrow Disappears

Rampant rumors from traders that repo desks are continuing to call in shares used to short financials such as Citi and AIG (look at charts below for lift off). This is causing a forced covering of all financial shorts, and an impossibility to put on new shorts... Interesting how this happens the day before Obama shows up on Leno. This fits in perfectly with Zero Hedge's conspiracy theory of the Volkswagen situation repeating itself in the financial sector in general and Citi in particular .





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Volkswagen Soap Opera Continues: New Disclosure May Lead to Recoveries for Hedge Funds, Pain for Porsche

Luxury automaker Porsche, which in October briefly became the world's largest hedge fund after it disclosed stock and derivative holdings in fellow car maker Volkswagen, prompting a massive short squeeze, and propelling Volkswagen to the status of largest company in the world by market capitalization, may be in some deep trouble after brand new disclosures by Porsche CFO Holger Härter.

For those uninitiated in the hate fest that transpired on October 28, Financial Ninja has done a good analysis of the events on that day:

This morning Volkswagen (VOW) was worth more than Exxon Mobile (XOM) as common shares rocketed up as much as 93% on a short squeeze.

Porsche, in an attempt to take over the carmaker has engineered a shortage of common shares by gobbling up as much as 75% of the company via options. The counter parties to these options went long the actual stock to hedge their exposure, leaving the shorts scrambling for shares to buy back.

Volkswagen Overtakes Exxon as Most Valuable Company (Update1): “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 55 percent as of 11:10 a.m. in Frankfurt trading. Wolfsburg, Germany-based Volkswagen has risen more than fivefold this year and at its intraday peak was valued at 296 billion euros ($370 billion), more than Exxon Mobil Corp.'s $343 billion market value at yesterday's closing price in New York, according to data compiled by Bloomberg.

Porsche, the maker of the 911 sports car, has accumulated Volkswagen shares since 2005 in an effort to protect ties to its largest supplier. Porsche said Oct. 26 that it aims to increase its holding from 42.6 percent. That prompted some short-sellers to buy from a shrinking pool of stock to end their bets. BaFin, Germany's financial-market regulator, said today that it's monitoring trading in Volkswagen shares following the gains.

“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.”

Stock On Loan

Volkswagen's surge came as 23 of the 29 other stocks in the country's benchmark DAX Index fell on investor concern that a slowdown in the global economy is accelerating. 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 the DAX, according to London-based Data Explorers.

Stuttgart, Germany-based Porsche added to an earlier 35 percent stake and said two days ago that it 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.”

Porsche's Intent

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.”

BaFin, which has long been criticized for doing nothing in reviewing allegations of Porsche's market manipulation, recently had the heat turned up on it, after billionaire Adolf Merckle committed suicide as a result of huge Volkswagen short-related losses, and may finally be forced to investigate what really happened in the days leading to October 28.

At first sight it is glaringly obvious that Porsche did not act in good faith during the sequence of events disclosing its stake accumulation especially considering the resultant profits to the company - in 2008 Porsche generated a €1 billion profit from car sales and €6.8 billion from Volkswagen option trades.

Porsche has long contended that its option trades in Volkswagen were driven by "industrial logic as it built a stake in Europe's largest carmaker." However at its January 31 shareholder meeting, CFO Holger Härter made a disclosure that can dramatically weaken this position and make the legal claims of complaining hedge funds strong enough to potentially lead to civil and criminal claims against the company. Härter said at the shareholder meeting that Porsche "has also arranged share options to generate liquidity. The underlying shares were referring to Dax companies and not Volkswagen." The company, acting as a full-blown hedge fund, made €400 million placing bets on several German blue-chip shares, in addition to the €6.8 billion from Volkswagen. It will be a very tough sell to BaFin that the company's finance division was speculating in one set of companies (i.e., the Dax) but innocently trading massive amounts of VOW options with no manipulative intentions.

If hedge funds are successful at proving manipulation, which this disclosure may have made significantly easier, Porsche could be on the hook for a full refund of the option proceeds, in addition to further civil disgorgement and/or criminal liabilities. While the luxury carmaker is currently in swimming financial health with a huge cash war chest thanks to the options trades, any regulatory escalation could result in a rapid and dramatic downfall of the company which has a €10 billion term loan maturity in March, as banks may run away from a debtor that may be liable for a €7 billion cash outflow. And if the dominos really collapse and Adolf Merckle's suicide is found to be a result of the alleged stock market manipulation, the life of Porsche CEO Wendelin Wiedeking may get really ugly fast.

Links: Porsche Annual meeting agenda, FT

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