VW briefly world top company as shortsellers caught

FRANKFURT, 28 Oct Tue Oct 28, 2008 12:05pm GMT

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FRANKFURT, 28 Oct (Reuters) - Volkswagen (VOWG.DE) briefly became the world's biggest company by market value on Tuesday, as short sellers continued to pile into the stock on weekend news Porsche had bought up much of VW's remaining free float.

Shares in the German car maker hit an intraday high of 1,005.01 euros, valuing the company at 296.06 billion euros ($370.4 billion) based on ordinary stock, more than that of worl'd number one company Exxon Mobil Corp's (XOM.N) $343 billion market value at Monday's closing price.

The shares later eased back to stand 25.4 percent higher at 652.00 euros at 1103 GMT, after tripling in the previous session.

Porsche PSH_p.DE said on Sunday it held over 74 percent of VW, prompting a panic among short sellers who had sold VW shares in the hope of buying them back at lower prices.

German regulator Bafin saud it was looking at the VW share movement to see if any insider trading or market manipulation had taken place.

"Each and any short seller in the world is trying to close up their position and there is no way they can do it except for trying to buy like mad," said FrankfurtFinanz analyst Heino Ruland.

"Someone is selling it at a rather interesting and rich price -- it is about 10 times as much as it should trade."

Analysts and traders said the stampede was historic for German large caps.

"We were joking before about the share price hitting 1,000 euros, and all of a sudden, it was there," said one Frankfurt-based trader. "This is perverse."

VW shares could continue to rise, or stay at current historic levels, experts said.

"The problem is, from a fundamental point of view, shares are really overvalued. But when the short squeeze comes to an end, there are not enough shares available to bring the share price back down," said one Frankfurt-based analyst.

Despite the massive rise in VW shares and talk of little free float remaining, the Frankfurt Stock Exchange said it did not plan any changes in the German blue-chip DAX index .GDAXI.

It has said in the past that if the free float in Volkswagen's ordinary shares were to fall below 5 percent, the Frankfurt Stock Exchange's index revision committee would automatically replace them in the DAX index with the top-ranked stock measured by free-float market capitalisation and trading volume.

Germany's financial regulator said it was looking at the VW share movement for possible insider trading or market manipulation, but had not yet launched an official examination.

PORSCHE RAISES STAKE

Porsche (PSHG_p.DE) said on Sunday it held stock and options equivalent to 74 percent of Europe's biggest carmaker and aimed to push through a domination agreement next year that would give it management control and capture VW's mighty cash flows.

This will almost certainly meet objections from VW's home state of Lower Saxony, which controls just over 20 percent. [nLQ46943]. In return for losing their dividend, minority investors would get an annual cash payout set by Porsche.

Analysts questioned Porsche's motives in announcing its holding, and suggested the company may have wanted to cash in one last big jackpot at the expense of unsuspecting investors.

Tim Schuldt, an analyst at Equinet, said Porsche's announcement seemed like an invitation for hedge funds to pile into the stock and cover their shorts. He said the problem was that there was only a free float of around 5.8 percent, and many of these free floating shares were actually held in index-tracking funds and other portfolios.

"For Porsche we don't know their real intentions ... it could be that if they managed to cash in at these levels obviously that would be extremely positive for their share price, for the value of their company," said Schuldt.

Shares in Porsche, who was not available for immediate comment, was up 6.8 percent.

For a chronology, of Porsche's takeover of VW please double click on [nLQ622493].

(Reporting by Sarah Marsh, Tim Hepher, Tyler Sitte, Alexander Huebner and Sabine Wollrab; Additional Reporting by Annika Lehmann, Christiaan Hetzner; Editing by Andrew Callus)