VW and Porsche saga finally winding down

Here's a nice summary of everything that has happened in the last four years. Click here for the Yahoo! Finance article. Porsche failed in its bid to take over VW (David and Goliath sort of deal) and now is ending up being merged into VW and will likely be one of the VW brands.

With increased Reward comes increased Risk. Market forces will drive them to balance each other out.

Update on Porsche / VW Saga: Porsche loses...

I had previously posted about Porsche's Risk/Reward situation. Click here to read that. Now rumors are going around that instead of Porsche ending up controlling or taking over VW, it is going to be the other way around.

In this recent Reuters article on NYTimes.com Porsche's debt has climbed to more than 10 billion Euros. This Time.com article (from May 2009) reports that Porsche's sales were recently only 9.3 billion Euros. Porsche really leveraged themselves this time and are paying for it, especially in this contracting automobile market.

The price for Porsche is 11.28 billion Euros and the outgoing Porsche CEO may get more than 100 million Euros (for getting Porsche into this mess starting back in 2005).

Porsche took the risk for the reward, and this time it's not paying off. VW was 16 times the size or Porsche.

Ongoing saga at carmaker Porsche

Here's another interesting story about risk and reward.

Starting back in 2005, carmaker Porsche started purchasing shares of VW. It currently owns a majority (>50%) of the company directly by shares. They also controlled additional shares with options. Speculators had been betting that the shares of VW would go down. Once the news got out about how much Porsche owned, there was a squeeze because of the following:

• Porsche shares + Porsche controlled via options + Shares short by speculators was greater than outstanding shares of VW.

I can't find the articles, but it was one of the first times where profits exceeded operating revenue (sales from Porsche cars). Comments at that time were that Porsche had turned into a hedge firm. This was all because of the large VW position.

• Click here for the TimesOnline article in March, 2009 reporting Porsche profits.

Now it appears that risk is starting to catch up to Porsche and they are looking for a bailout via either a merger with VW or loan/investment from a Qatar investment company.

• Click here for the Yahoo! Finance article.

Another risk and reward issue. Porsche received a huge reported reward earlier this year, but now may suffer some risk. We'll have to see how the reporting profits go in the next few quarters.