Volkswagen beats Exxon to be most valuable firm

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Oct 28 : Volkswagen AG became the world's biggest company by market value after Porsche SE announced plans to raise its stake in the German carmaker to 75%, triggering demand from short-sellers. Volkswagen rose as much as 485.01 euros, or 93%, to 1,005.01 euros and was up 55% in Frankfurt trading.

The Wolfsburg, Germany-based Volkswagen has risen more than fivefold in 2008 and at its intraday peak was valued at 296 billion euros ($370 billion), more than Exxon Mobil Corp‘s $343 billion market value at Monday’s closing price in New York, according to data compiled by Bloomberg.

Porsche, the maker of the 911 sports car, has accumulated Volkswagen shares since 2005 in an effort to protect ties to its biggest supplier. Porsche said on October 26 that it aimed to increase its holding from 42.6%. That prompted some short-sellers to buy from a shrinking pool of stock to end their bets. BaFin, Germany's financial-market regulator, said on Tuesday that it was monitoring trading in Volkswagen shares following the gains.

“One of the biggest risks with the herd mentality approach to shorting is that a lot of money can be made on the outset,” said Ed Oliver, a senior business consultant at Spitalfields Advisors, a London-based firm specialising in securities lending. “But you can end up losing the whole of it when you try to close the position. There's no limit” he added.

Volkswagen's surge came as 23 of the 29 other stocks in the country's benchmark DAX Index fell on investor concern that a slowdown in the global economy was accelerating. About 12.9% of Volkswagen's common stock was on loan as of October 23, mostly for short sales, the highest proportion of any company on the DAX, according to London-based Data Explorers.

The Stuttgart, Germany-based Porsche added to an earlier 35% stake and said two days ago that it holds options for another 31.5%. “Porsche heads for a domination agreement and triggers a short-squeeze,” Horst Schneider, an HSBC Holdings Plc analyst in Dusseldorf, Germany, wrote in a report on Monday, in which he upgraded Volkswagen's common shares to “neutral” from ‘underweight’. The stock “will be more driven by covering of short positions rather than by fundamental valuations.”