VW Now Europe's Most Valuable Company

29 October 2008

WOLFSBURG, Germany: Auto manufacturer Volkswagen has overtaken Nestlé as Europe's most valuable company by market capitalisation, as Porsche's planned takeover of its sister-company drove up VW's share price up by over 100% earlier this week.

As previously reported, Porsche now owns some 74% of VW, and the trading frenzy resulting from the takeover process caused VW to overtake Toyota as the most valuable auto company by market capitalisation in early October.

Earlier this week, the company's share price rose by €309.15 ($387.72; £246.31) to a value of €520, and VW has essentially tripled in value this year, with a market value of €145bn, more than Nestlé and BP

There is now a shortage of "free-floating" shares available for Porsche to purchase, with the vast majority now owned by the auto firm and the German region of Lower Saxony, which holds a 20.1% stake.

As a result, analysts warn there could be a major risk of "short selling" (the sale of borrowed shares, which are later repurchased at a lower price before returning them to the lender) on the remaining stock.

Ed Oliver, senior business consultant at Spitalfields Advisors, which specialises in securities lending, says: "One of the biggest risks with the herd mentality approach to shorting is that a lot of money can be made on the outset.

"But you can end up losing the whole of it when you try to close the position. There's no limit."

Data sourced from Bloomberg.com (Germany); additional content by WARC staff