In yet another anomaly of the current financial crisis, shares in Volkswagen more than quadrupled in a matter of days after automaker Porsche announced it had secretly acquired 7.41% of the company through a series of cash-settled options with a group of investment banks. With less than 6% of outstanding shares left in the market, hedge fund managers stampeded to cover their short positions. The demand sent VW stock through the roof and VW’s overall value up to $278 billion euros (US$348 billion), briefly surpassing Exxon Mobil as the world’s biggest company by market value. Short sellers rushed to close their positions, paying virtually any price to obtain the few remaining shares.
Things have since settled down, after Porsche announced it would assist in settling hedged transactions and increase the liquidity of Volkswagen ordinary shares, according to a report by Reuters. Nevertheless, some hedge funds may have taken a big hit. In particular David Einhorn’s Greenlight Capital, is reported to have suffered heavy losses from a VW trade.