Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

VW Gains On Potential Porsche IPO. PAH3 Gains Even More

Selected European Holdcos and DLCs: April ‘22 Report

The VW Case and the German Act on Model Case Proceedings in Disputes Under the Capital Market Law

Quiddity Advisors

Event-Driven

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?


Volkswagen (Pref)

Volkswagen's Ords Are Acting Up - Again