European Event-Driven Analyst

Jesus Rodriguez Aguilar

Event-Driven

Porsche Automobil Holding  / Event-Driven

<ul>
<li>There is just one DLC in this report, Rio Tinto, following the unification of BHP and Shell.</li>
<li>Discounts to NAV of holdcos have shown mixed performance: Alba, 41.3%; GBL, 26.9%; Heineken Holdings, 18.2%; Industrivärden, 12.1%; Investor AB, 11.6%; Kinnevik B, 8.8%(premium); Porsche Automobile Holding, 39.2%.</li>
<li>Recommended trades: GBL vs. listed assets, Industrivärden vs. listed assets, Investor vs. listed assets, Porsche vs. VW (long 1 PAH3 GR/short 0.5136 VOW GR), Rio Tinto.</li>
</ul>


There is just one DLC in this report, Rio Tinto, following the unification of BHP and Shell.
Discounts to NAV of holdcos have shown mixed performance: Alba, 41.3%; GBL, 26.9%; Heineken Holdings, 18.2%; Industrivärden, 12.1%; Investor AB, 11.6%; Kinnevik B, 8.8%(premium); Porsche Automobile Holding, 39.2%.
Recommended trades: GBL vs. listed assets, Industrivärden vs. listed assets, Investor vs. listed assets, Porsche vs. VW (long 1 PAH3 GR/short 0.5136 VOW GR), Rio Tinto.


Selected European Holdcos and DLCs: January ‘22 Report

<ul>
<li>Porsche Automobil Holding Se (PAH3 GR) is a listed holding company whose main asset is a 53.3% stake of Volkswagen ordinary shares (worth c. €43,243 million).</li>
<li>The combination of holding chain and dual-class structure allows the Porsche-Piëch families to control Volkswagen with just a 15.7% economic interest. The discount of Porsche SE is a massive 38.2%.</li>
<li>The discount is above the 9-year average, 30.2%. I recommend long 1 PAH3 GR/short 0.5136 VOW GR.</li>
</ul>


Porsche Automobil Holding Se (PAH3 GR) is a listed holding company whose main asset is a 53.3% stake of Volkswagen ordinary shares (worth c. €43,243 million).
The combination of holding chain and dual-class structure allows the Porsche-Piëch families to control Volkswagen with just a 15.7% economic interest. The discount of Porsche SE is a massive 38.2%.
The discount is above the 9-year average, 30.2%. I recommend long 1 PAH3 GR/short 0.5136 VOW GR.


Porsche Automobil Holding SE: Double Discount

<ul>
<li>Spreads have generally tightened across our liquid universe, 450 bps in the case of Volkswagen.</li>
<li>Recommendations Long ords / short prefs: Fuchs Petrolub, Henkel, Handelsbanken, Investor AB.</li>
<li>Recommendations Long prefs / short ords: BMW, Roche, Schroders, Telecom Italia, Volkswagen.</li>
</ul>


Spreads have generally tightened across our liquid universe, 450 bps in the case of Volkswagen.
Recommendations Long ords / short prefs: Fuchs Petrolub, Henkel, Handelsbanken, Investor AB.
Recommendations Long prefs / short ords: BMW, Roche, Schroders, Telecom Italia, Volkswagen.


Liquid Universe of European Ordinary and Preferred Shares: January '22 Report

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

The sound bite in the last week was <a href="https://www.smartkarma.com/entities/microsoft-corp" target="_blank" data-smartkarma-citation="entities:15273:1" rel="noopener">Microsoft Corp (MSFT US)</a> surpassing <a href="https://www.smartkarma.com/entities/apple-inc" target="_blank" data-smartkarma-citation="entities:666:1" rel="noopener">Apple Inc (AAPL US)</a> as the world's most valuable company. 
Yet 13 years ago, almost to the day, the world's largest company was <a href="https://www.smartkarma.com/entities/volkswagen-ag" target="_blank" data-smartkarma-citation="entities:21738:1" rel="noopener">Volkswagen (VOW GR)</a>. For one day at least. 
Volkswagen, like a number of large listed companies in Germany, has two classes of shares - ordinary shares, which are carry voting rights, and preference shares, which don't, but are income paying. Below is the ord premium over prefs for the last 18 years.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/499/original/image_23964649881635928119230.png?1635928120" class="editor-image img-responsive" data-smartkarma-image-id="239499"></figure>
That extraordinary spike occurred on the 28 October 2008. Just as global markets were imploding. 
Around this time <a href="https://www.smartkarma.com/entities/porsche-automobil-holding-se" target="_blank" data-smartkarma-citation="entities:21691:1" rel="noopener">Porsche Automobil Holding Se (PAH3 GR)</a> held ~35% in VW - the ords - having first taken a 20% stake in 2005, then to 30% in early 2007, triggering a mandatory offer. In March 2008, Porsche's supervisory board gave the green light to hold 50%. 
The ord premium oscillated between ~27%-55% in the early noughts until around 2006 when Porsche began building its stake.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/503/original/image_70873068291635928736842.png?1635928739" class="editor-image img-responsive" data-smartkarma-image-id="239503"></figure>
This escalating premium can also be illustrated by the bifurcation in the prices of the two share classes.
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/520/original/image_637451579121635932198816.png?1635932199" class="editor-image img-responsive" data-smartkarma-image-id="239520"></figure>
The arbitrage  - short the ords, long the prefs - appeared a "riskless trade". And still, the ord premium expanded, closing at a 400+% on the 16 October, before showing some semblance of normalcy and retracing to 247% on the 21 October.
Porsche had made no public announcement about any further share acquisition since the 17 September when it held <a href="https://www.porsche-se.com/en/news/press-releases/details/news/detail/News/porsche-increases-its-vw-stake-to-3514-per-cent-1" target="_blank" rel="noopener">35.14%</a>.  On Sunday the 26 October, it <a href="https://www.porsche-se.com/en/news/press-releases/details/news/detail/News/porsche-heads-for-domination-agreement-1" target="_blank" rel="noopener">announced</a>:
<blockquote>
Due to the dramatic distortions on the financial markets Porsche Automobil Holding SE, Stuttgart, has decided over the weekend to disclose its holdings in shares and hedging positions related to the takeover of Volkswagen AG, Wolfsburg. At the end of last week Porsche SE held 42.6 per cent of the Volkswagen ordinary shares and in addition 31.5 per cent in so called cash settled options relating to Volkswagen ordinary shares to hedge against price risks, representing a total of 74.1 per cent.
</blockquote>
Then that sinking feeling: Porsche holds 74.1%, Lower Saxony 20%, leaving ~6% of ordinary shares in the market to buy. Yet an estimated 12% of the ord shares were short sold. It wasn't possible for all short-sellers to buy back shares and close their positions.
VW touched $999/share on the 28 October,  before finally coming back (ostensibly from the moon) to earth, belatedly helped by Porsche providing 5% to short-sellers (despite <a href="https://www.porsche-se.com/en/news/press-releases/details/news/detail/News/short-sellers-responsible-for-extreme-price-movements-in-volkswagen-ordinary-shares-1" target="_blank" rel="noopener">blaming</a> the shorts for the extreme price movements).
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/516/original/image_468353378111635930921766.png?1635930922" class="editor-image img-responsive" data-smartkarma-image-id="239516"></figure>
Porsche subsequently cleared 50% in VW's ordinary shares, but not only lacked the funding to take its stake all the way to 75% - via the options - it had also borrowed heavily to build that 50% stake in VW, to the point the iconic car brand had to stave off possible bankruptcy.
Short-sellers lost around US$20bn which has largely fallen on deaf ears in the <a href="https://www.courthousenews.com/investors-lose-suit-over-porsches-short-squeeze/" target="_blank" rel="noopener">courts</a>. Porsche's CEO Wendelin Wiedeking was booted out. And Ferdinand Piëch, Ferdinand Porsche's grandson, former CEO, then chairman of VW, was sitting pretty as he and family held 50% of the voting rights in Porsche SE. 
The ords moved into negative territory following the carnage, then roughly hugged parity for a few years. The ord premium is on the run again. Time to get short?
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/239/515/original/image_948776569101635930730635.png?1635930743" class="editor-image img-responsive" data-smartkarma-image-id="239515"></figure>

The sound bite in the last week was Microsoft Corp (MSFT US) surpassing Apple Inc (AAPL US) as the world's most valuable company. 
Yet 13 years ago, almost to the day, the world's largest company was Volkswagen (VOW GR). For one day at least. 
Volkswagen, like a number of large listed companies in Germany, has two classes of shares - ordinary shares, which are carry voting rights, and preference shares, which don't, but are income paying. Below is the ord premium over prefs for the last 18 years.

That extraordinary spike occurred on the 28 October 2008. Just as global markets were imploding. 
Around this time Porsche Automobil Holding Se (PAH3 GR) held ~35% in VW - the ords - having first taken a 20% stake in 2005, then to 30% in early 2007, triggering a mandatory offer. In March 2008, Porsche's supervisory board gave the green light to hold 50%. 
The ord premium oscillated between ~27%-55% in the early noughts until around 2006 when Porsche began building its stake.

This escalating premium can also be illustrated by the bifurcation in the prices of the two share classes.

The arbitrage  - short the ords, long the prefs - appeared a "riskless trade". And still, the ord premium expanded, closing at a 400+% on the 16 October, before showing some semblance of normalcy and retracing to 247% on the 21 October.
Porsche had made no public announcement about any further share acquisition since the 17 September when it held 35.14%.  On Sunday the 26 October, it announced:

Due to the dramatic distortions on the financial markets Porsche Automobil Holding SE, Stuttgart, has decided over the weekend to disclose its holdings in shares and hedging positions related to the takeover of Volkswagen AG, Wolfsburg. At the end of last week Porsche SE held 42.6 per cent of the Volkswagen ordinary shares and in addition 31.5 per cent in so called cash settled options relating to Volkswagen ordinary shares to hedge against price risks, representing a total of 74.1 per cent.

Then that sinking feeling: Porsche holds 74.1%, Lower Saxony 20%, leaving ~6% of ordinary shares in the market to buy. Yet an estimated 12% of the ord shares were short sold. It wasn't possible for all short-sellers to buy back shares and close their positions.
VW touched $999/share on the 28 October,  before finally coming back (ostensibly from the moon) to earth, belatedly helped by Porsche providing 5% to short-sellers (despite blaming the shorts for the extreme price movements).

Porsche subsequently cleared 50% in VW's ordinary shares, but not only lacked the funding to take its stake all the way to 75% - via the options - it had also borrowed heavily to build that 50% stake in VW, to the point the iconic car brand had to stave off possible bankruptcy.
Short-sellers lost around US$20bn which has largely fallen on deaf ears in the courts. Porsche's CEO Wendelin Wiedeking was booted out. And Ferdinand Piëch, Ferdinand Porsche's grandson, former CEO, then chairman of VW, was sitting pretty as he and family held 50% of the voting rights in Porsche SE. 
The ords moved into negative territory following the carnage, then roughly hugged parity for a few years. The ord premium is on the run again. Time to get short?


This Insight explains the main features of German non-voting savings shares and provides a list of the main ones traded. It mentions the reasons why preferred shareholders could be at a disadvantage in case of a takeover, and why some companies choose to offer conversion of preferred shares into ordinary shares.

This Insight explains the main features of German non-voting savings shares and provides a list of the main ones traded. It mentions the reasons why preferred shareholders could be at a disadvantage in case of a takeover, and why some companies choose to offer conversion of preferred shares into ordinary shares.

German Preferred Shares: Takeover and Conversion

Germany

Porsche Automobil Holding SE is a holding company. The Company, through its subsidiaries, offers development, production, and sale of automobiles along with financial services. Porsche operates worldwide.

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Porsche Automobil Holding (PAH3 GR)

Selected European Holdcos and DLCs: January ‘22 Report

Discounts to NAV of selected holdings have not shown a clear trend in January. Now there is just one DLC in this report, Rio Tinto, following the...

Jesus Rodriguez Aguilar

Porsche Automobil Holding SE: Double Discount

A holding chain and dual-class structure allows the Porsche-Piëch families to control Volkswagen with just a 15.7% economic interest. For a...

Jesus Rodriguez Aguilar

Liquid Universe of European Ordinary and Preferred Shares: January '22 Report

This report contains a table with a selection of European companies with non-voting shares and ordinary shares. Spreads have generally...

Jesus Rodriguez Aguilar

Volkswagen's Ords Are Acting Up - Again

Why the bifurcation? I see no apparent reason. And without the benefit of understanding why this recent move has occurred, I'd be reluctant to set...

David Blennerhassett

German Preferred Shares: Takeover and Conversion

This Insight explains the main features of German non-voting savings shares, why preferred shareholders could be at a disadvantage during...

Jesus Rodriguez Aguilar

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