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Yizhou Feng

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Yizhou Feng
Executive Summary
The case is about Porsche using cash-settled options to obtain control of Volkswagen silently and TCI and 3G using TRS to get control over ownership of CSX to initiate a meeting of changing the board members of CSX. In this report, I will detailed analysis how they processed their strategy using equity derivatives and what was the result. I will further discuss whether it is good thing to have CEO involved in equity derivative trading and whether the disclosure requirement should be mandatory for equity derivatives.

Porsche and Volkswagen Case
Background
The main players in this case are Porsche and Volkswagen, which had a very long and interwoven history back in 1931. The famous VW Beetle was created by Ferdinand Porsche in 1931, who was also the founder of the luxury car manufacturer Porsche and the grandfather to the board chairmen of both Porsche and Volkswagen. Around 2000, the political environment for foreign investors, who had held more than 5000 German firms, changed a lot due to German politicians vilifying them and clamouring for more domestic ownership.

Following this political pursuit, in 2005, to support a "German Solution" to the takeover dilemma and to match the 20% ownership held by the state of Lower Saxony, Wendelin Wiedeking, the CEO of Porsche, announced the intention of the company to purchase 20 percent of Volkswagen stock. In 2007, the company increased the holding to 30 percent, which gave a positive signal to German legislators to put pressure on Porsche to continue the buying action. Porsche said no in response surprisingly. However, in a less than a year, the board backed its CEO's decision to increase its position in ownership of Volkswagen to 50%, and soon after this the company again denied rumours saying it will buy up to 75% of shares. This happened between March and October, and finished the prologue of this story, when the closed price for Volksawagen was €211.
The main chapter begun exactly on October

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