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When Porsche was accused of being a hedge fund instead of a car maker!



Back in 2005, when Porsche was raising its stake in Volkswagen via equity acquisitions, it bought options to protect itself from the price fluctuations of Volkswagen.


These options allowed Porsche to lock in the ability to acquire Volkswagen shares at a given price within a given time period regardless how much Volkswagen's share price fluctuate in the market.


The options proved to be a smart move (at least in short term). The profits from these options rose so steeply that they began to eclipse the profits from making cars.


At the end FY08-09, Porsche reported net earnings of EUR6.4bn on sales of EUR7.5bn. However, the pretax profit rose to EUR8.6bn which actually exceeded sale, an un-heard of occurrence.


However, Porsche landed in financial turmoil amounting to losses of billions due to the put options it sold to Maple Bank, a Canadian Investment Bank. This became acute during the sub-prime crises when Volkswagens shares plummeted along with other German companies.


Porsche and Volkswagen share a common lineage in terms of the key people behind their establishment, the Porsche and the Piech families.


Ferdinand Porsche was responsible for the laying down building blocks of Volkswagen and Porsche company during the Nazi ruling days and Ferdinand Piech his grandson who played a key role in making Volkswagen a global major automotive player.


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