- It's 2008, your parents
are freaking out and fighting because they're losing their jobs and have to feed you Chef
Boyardee for every meal. The world's economy is crashing. Meanwhile in Germany, a little
car company called Porsche is finalizing what should be one of the most deceptively
brilliant economic takeovers in history. (camera clicking) Volkswagen, Germany's automotive giant had been suffering amidst
the economic crisis, and was on the brink of bankruptcy, and Porsche wanted to buy them. So how did they plan on taking VW over? How did Volkswagen become
the highest valued company in the world for a day, and how
did Porsche make $11 billion because of this? And finally, who prevented Porsche from taking Volkswagen over completely? We're gonna find out. (bass thumping music) Thank you to Dr. Squatch for
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at drsquatch.com or just click the link in the description. Now, let's get back to WheelHouse. - Are you really in the shower right now? - Yes, yes I am. Porsche and Volkswagen have
an interesting relationship to say the least, and the story of how Porsche
managed to turn Volkswagen into a hedge fund's worst
nightmare is full of twists and turns, so pay attention. To understand the scheme
Porsche tried to pull on VW, we need to understand what a stock short is so this all makes sense. You've definitely heard this term before because of the whole
GameStop stock incident, but almost the exact same
thing happened between Porsche and Volkswagen, years earlier. We'll start with the basics. When a company is publicly
traded, it sells shares, or stock, which represents a fraction of ownership in the company. A company does this in order
to gain additional funding to invest in themselves
to create new things like new products, or buildings, or whatever else they
need to grow the business. If the business continues to
make money, the investor wins, and the company wins. Similarly though, if
the company loses money, the investors lose a percentage
of their stock's worth. A short sell occurs when a hedge fund, which is basically a group of investors, chooses to borrow shares of
a company from an account, agreeing to pay back the
shares at a later date, with interest of course. They sell the shares on the market, which puts them in an interesting place because they've promised
to give back the shares not the price they sold those shares for. So if the value of their shares drops it's cheap for the hedge fund to buy the shares off the market and return them to the account. All the money they saved in
the process is theirs to keep. A squeeze happens when the
price of the share goes up, instead of down, which is not
what the hedge funds expected. The hedge fund needs
to buy back the shares at a higher price, in an
attempt to cover their losses. The more these hedge funds purchase, the higher the share price becomes, because of the increased demand. This creates a scarcity
of shares on the market. With the share prices
skyrocketing, the company, in this case, Volkswagen, gains tremendous value, almost overnight. So how does the stock price
start going up anyway, wasn't Volkswagen doing awful in 2008? Well, enter Wendelin Wiedeking,
say that 10 times fast, the CEO of Porsche at the time, and the man who had rescued
Porsche from its near bankruptcy and irrelevancy. Wendelin Wiedeking had been
reviving the brand for years, introducing cars like the
Boxster and the Cayenne, which put Porsche in the
best financial position it had been in a long time. For more on that turnaround, check out this episode right here. This time though, Wendelin and
his team had their eyes set on one thing, Volkswagen. It was affordable at the time, mostly because VW was on the brink of bankruptcy and bleeding money, but
hey, cheap is cheap. They were also like best
friends with each other, and owning VW would have
been mutually beneficial for both companies. Earlier in 2005, Porsche
announced they had bought 20% of VW, emphasizing it was
not to take them over, but rather to help VW stay independent, since Porsche relied on them heavily. Stock prices stayed stable since
Porsche was buying so many, but it was pretty suspicious that Porsche was dumping billions of dollars into one of the least profitable
car companies in Europe, with no clear path to
getting in the black again. See, in 2006, Porsche grew
their stake from 20% to 25%, still claiming they were not intending to take over Volkswagen. No sir, not us, we would
never do such a thing. By 2007, Porsche had a 31% stake, and share prices had doubled since Porsche had started buying shares. By March 2008, Porsche had authorization from their board of directors
to acquire 50% of VW. Volkswagen, who was so
financially weak at that point, was growing in value because of Porsche, and hedge funds were
salivating at this opportunity to short sell, they just knew it was bound to start going down at some point. Wall Street believed VW
was severely overvalued, and hedge funds began to take out loans in order to short Volkswagen. This led to 12.8% of VW shares
being shorted by hedge funds, with the hopeful prediction
that Volkswagen would lose value because of its poor performance. It had to go down, right? What could possibly go
wrong for the hedge funds? Nothing, except Porsche dropped one of the most shocking
economic bombs of the decade. On October 28th of 2008, Wiedeking revealed Porsche
now owned 42.6% of Volkswagen, with 31.5% available in stock options, which is the right to
purchase stock at a set price, leaving Porsche owning a
whopping 74% of Volkswagen and intending to increase that to 75%. This would allow Porsche
certain execution rights, which we'll talk about in a second. The other 20% was locked up
with the German government and 5% were locked up in index funds, this left almost 1% of shares
available on the market. This was a huge issue when 12.8%
of the shares were on loan, intending to be shorted later. Investors went into a panicked frenzy when they discovered that
only 1% of the stocks were available. They started buying shares
frantically to cover their costs, and the severe scarcity
of the shares compared to the demand skyrocketed
share prices from $200 to $1000 in a single day. With share prices skyrocketing, VW became the highest
valued company in the world for a few days, and Porsche
made over $11 billion dollars almost overnight. (money bag thudding)
(coins clinking) Remember what happened with
GameStop earlier this year? This is very similar. In this case, GameStop was Volkswagen, and Porsche was the people on Reddit trying to buy GameStop shares. The same kind of short happened, and GameStop shot up in a day. Compare this to a successful
company like Apple, which takes years to see the same growth that VW did in a single day. So why didn't the hedge funds, or anyone else for that
matter, see this coming? Surely, they wouldn't have
bet on a stock going down if they had known Porsche was gonna buy up so many shares. Unfortunately for our
investors at the hedge funds, Porsche sort of lied to them. See, by German law,
Porsche was not required to disclose the information
about the amount of stake in VW they had been acquiring, and despite previously claiming that they had no
intention to take it over, it became pretty obvious
this was Porsche's intention. So, how come they weren't
able to take over Volkswagen? Well, this is where things
get a little more spicy. (bouncy music) Back in 2005, when Porsche
bought enough shares in VW to become the largest stakeholder,
many people were upset. The chairman of Volkswagen was a man named Ferdinand Karl Piech, the grandson of Ferdinand Porsche. Piech, I'm gonna say it Piech, okay? It's Ferdinand Piech, I
can't do that Piech sound that Germans can when they say it. Piech owned 10% of Porsche at the time. Now, let me reiterate this, the chairman of Volkswagen, was the descendant to
the throne of Porsche, and owned 10% of Porsche as well. Piech was also the former
director of engineering at Porsche and was previously in
line to become the CEO. Ferdinand Piech had
his hands in both pools with the ability to avoid a
takeover attempt by Porsche, while also having the
ability to majorly profit off of the demand for VW shares
since he was awarded stock as compensation for his position. He was seriously double-dipping. Many people were upset, for good reason, because it looked like a deceptive, nepotistic power move
by the Porsche family. Piech had his hand in both companies, giving him a little too much influence. Christian Wulff, and remember
that name, it's important, the president of Lower
Saxony, a state in Germany, which at the time, owned 20% of VW shares, wanted to replace Ferdinand Karl Piech due to this obvious conflict of interest. But Piech had a trick up his sleeve. A trump card that would come into play at the perfect moment. Unfortunately, there were
still two roadblocks in the way for the Porsche and the Piech family, which prevented them from taking over VW, The first reason being
the somewhat-antiquated Volkswagen Rule. When government-owned Volkswagen
went private in the '60s, parliament made some laws to keep Volkswagen under their influence. Any government party that
owned 20% of VW had veto power and influence within the company. In this case, it was Christian
Wulff of Lower Saxony, that state in Germany. The government had no intention
to sell VW to Porsche. Christian Wulff advocated to stop Porsche from taking over as well,
requiring that Porsche needed to own 80% of shares, and not 75. Porsche now needed even
more shares if they wanted to claim VW as their own. The second issue was that
Porsche had taken huge loans when acquiring VW shares, and with the increasing
price of these shares, Porsche had accumulated around $13 billion in debt during the economic crash, and the banks wanted it back. Wendelin Wiedeking claimed he
was surprised by the harshness of the banks, but he had
a plan to squirrel out of the bind he now found himself in. If Porsche could acquire that 80% stake, they would be able to
tap into VW's pockets, and find $14 billion in cash. He could then pay off Porsche's debt. The problem was, nobody in Europe wanted to give Porsche any more loans. So where could they go to find some? None other than the small, Middle Eastern peninsula country of Qatar. Porsche actually managed
to arrange a deal in Qatar with several wealthy investors in order to get themselves the money
they needed to take over VW. This would have solved all their problems, and Porsche would now own VW. But right before everything
was signed and agreed on, Germany stepped in. Christian Wulff, along with Angela Merkel, the chancellor of
Germany, blocked the deal. They were only able to do this because of the Volkswagen rule,
which we just talked about. But it gets more complicated, Piech, the tricky guy who has his
hand in Porsche and VW, chose to side with
Christian Wulff this time. That's right, he sided with
the man who wanted him removed from his position, and
they asked the investors from Qatar to divert the funds
to VW instead of Porsche. What was Piech thinking? And where did this leave Porsche? Well, not in a good spot. Porsche was heavily in debt, out of cash, and suffered from Christian
Wulff's veto powers. Fortunately, our friend Ferdinand Piech had an ace up his sleeve. Piech played Christian Wulff's side, proposing a merger between
Volkswagen and Porsche, on the condition that
VW would buy Porsche, and become one company
under the Volkswagen name. The Porsche and Piech family
would then own over half of VW, since they owned so many
shares to begin with. Christian Wulff and Lower Saxony
would keep their 20% stake, and the investors from Qatar
would pay off the debts for a 17% share in the
new Porsche/VW merger. VW didn't have much of
a choice, and honestly, neither did Porsche. The best option was to
merge the companies, and that's what happened. Today, Porsche still remains
under the Volkswagen name, along with other big
brands like Lamborghini, Bentley and Audi. The merger had been
very mutually beneficial for both companies, and Porsche has been pumping
out some sick cars ever since. I don't think it was a bad thing. Many people used to call
Porsche, the hedge fund that sold cars on the
side and now you know why. That's the story, that's the end. Thank you very much for
watching this video. If you haven't subscribed to Donut yet, we just hit five million
subscribers not too long ago, and it's not too late to
hop on board the train. Check out these videos about Porsche. We've done a lot of them, I
love talking about Porsche, great car company. Be kind, see you next time.
Donut media did a great job explaining things. Maybe he’s a GME ape?
I can’t wait to buy that Porsche
Remember, Porsche started at 12.8%, and were buying up shares under the radar and finally disclosed they owned 70% of the float. Now remember apes buy dips and there’s dd circulating that retail could own 100% (or more) of the float. Apes are Porsche only better. But 100% isn’t needed. What’s gonna be a surprise is when they realize how diamond handed apes really are when the votes are counted.
So your saying there’s a chance??
Cough cough “ RC reverse uno” Cough Cough
Too know the past, is too know the future.