By Alexis Xydias
Oct. 29 (Bloomberg) -- Porsche SE climbed the most in at least 12 years on speculation the sports-car maker will profit from Volkswagen AG's fourfold increase as it takes steps to ease a so-called short squeeze. Volkswagen tumbled.
Porsche, which is Volkswagen's largest shareholder, jumped as much as 43 percent to 65.98 euros in Frankfurt, the steepest gain since at least January 1996. Volkswagen slumped as much as 48 percent to 491 euros.
The maker of the 911 sports car has options equivalent to 31.5 percent of Volkswagen's common stock, and said today that it may settle as much as 5 percent of the contracts to increase the supply of shares. The 5 percent stake increased in value by 10.8 billion euros ($13.8 billion) in this week's first two days of trading, data compiled by Bloomberg show.
``It's a huge gain for them,'' said Albrecht Denninghoff, a Frankfurt-based analyst at BHF-Bank AG. ``For Volkswagen, it will get easier for short-sellers than in the last two days. But getting to normal levels, that is something else.''
Volkswagen is the most shorted stock in Germany's benchmark DAX Index. Porsche's announcement Oct. 26 that it plans to raise its stake in the German carmaker to 75 percent forced short- sellers to cover their positions and triggered a short squeeze that at one point yesterday made Volkswagen the largest company in the world by market value, surpassing Exxon Mobil Corp.
`State of the Market'
``Porsche SE intends -- depending on the state of the market -- to settle hedging transactions in the amount of up to 5 percent of the Volkswagen ordinary shares,'' the company said in a statement to the stock exchange. ``This may result in an increase in the liquidity of the Volkswagen ordinary shares.''
Had Porsche acquired the options at Volkswagen's closing price last week, the sports-car maker would have gained more than 734 euros per share, before taxes, if the options were exercised at yesterday's closing price. A 5 percent stake in Wolfsburg, Germany-based Volkswagen's common stock equals 14.7 million shares, data compiled by Bloomberg show.
Volkswagen's common shares had lured short-sellers who speculated the stock's 35 percent rise in 2008 through the end of last week was overdone given the outlook for car sales. Some investors have called for regulators to investigate Porsche's transactions.
`Acted Irresponsibly'
``Porsche has acted irresponsibly and that has damaged capital markets considerably,'' Henning Gebhardt, who helps manage the equivalent of $220 billion at DWS Investment GmbH in Frankfurt, said yesterday. ``Porsche snuck up on Volkswagen. They knew about the short sellers, and it must have been clear to them that there would be a massive short squeeze.''
Hedge funds may face billions of dollars of losses because they wrongly expected Volkswagen shares to fall, the Wall Street Journal reported, citing unidentified prime brokers familiar with the positions.
Funds affected include Greenlight Capital Inc., SAC Capital Advisors LLC, Glenview Capital Management and Perry Capital LLC, the Journal said, citing unidentified people familiar with the funds.
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.
`Remains Committed'
The Stuttgart, Germany-based carmaker said today it ``remains committed'' to increasing its stake in Europe's biggest carmaker to 75 percent and plans to continue to buy ordinary VW shares ``on and off'' the stock exchange at prices that are ``economically justifiable.'' The company has declined to give details on the options.
Deutsche Boerse AG, operator of the Frankfurt stock exchange, said late yesterday it will reduce Volkswagen's weighting in the benchmark DAX Index to 10 percent after the stock's surge. VW represented 27 percent of the DAX after yesterday's rally, an increase from 6.8 percent on Oct. 24.
The share surge meant Volkswagen was having an outsized effect on the DAX. While it was the only company out of 30 in the index that gained on Oct. 27, Volkswagen's 147 percent jump was enough to drive the measure up 0.9 percent.
Stoxx Ltd. also reduced the weight of Volkswagen in benchmarks including the Dow Jones Euro Stoxx 50 Index.
Germany's financial-markets regulator yesterday said it's looking into trading of Volkswagen shares. BaFin said it's monitoring Volkswagen and hasn't started a formal probe.
Porsche ``denies all responsibility for these market distortions and for the resulting risks to which the short sellers have exposed themselves,'' the company said. ``Allegations of price manipulation by Porsche'' are ``without any foundation whatsoever,'' the company said.
To contact the reporters on this story: Alexis Xydias in London at axydias@bloomberg.net
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