Essay by battlement827University, Master's September 2014

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Porsche, Volkswagen, and CSX

Executive Summary

This report aims to analyses the results of CSX and Volkswagen case on the aspect of derivative. Firstly, the report analyses the CSX collides with TCI and 3G on the aspect of TRS, merits and demerits of obtain a synthetic share of in CSX and the regulation position. Secondly, analyzing the Porsche obtain ownership of Volkswagen on the aspect of short squeeze, pair trading, CSO, and CEO's decision. Lastly, make recommendation and conclusion for the case.


Derivative products become more and more important in today's financial market especially in terms of merge and acquisition. In this case, total return swaps and cash-settled option used in CSX case and Volkswagen case respectively. These two stories indicates the similar purpose to control the firm, however, they have dramatically different results.

CSX Collides with TCI and 3G

Total Return Swap

Total return swap (TRS) is a swap agreement in which one party makes payments based on a set rate, either fixed or variable, while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains.

In total return swaps, the underlying asset, referred to as the reference asset, is usually an equity index, loans, or bonds. This is owned by the party receiving the set rate payment. In this case, TCI and 3G entered into TRS with a set rate, and CSX pay the return to them which based on their income and capital return. TCI and 3G benefited from TRS with a minimal outlay which not requires to disclosure their shareholding positions. [1: Investopiedia. http://www.investopedia.com/terms/t/totalreturnswap.asp ]

Merits and Demerits

TCI and 3G obtained a synthetic share in CSX has its merits and demerits. In terms of merits, the federal granted TCI and...