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23 Oct 2007 16:14
Europe’s top court on Tuesday overturned a German law that protects Volkswagen against takeovers, allowing Porsche to tighten its grip on the wheel of the continent’s biggest carmaker.
The European Court of Justice ruled against the “Volkswagen Law”, thereby upholding Porsche’s claim to voting rights in line with its 31% stake in VW and raising the chances of a takeover bid by the luxury sports car company.
The decision could also have wider-reaching consequences in sectors where governments hold “golden shares” to protect key companies, in particular from foreign predators.
Oliver Drewes, a spokesperson for the European Commission, which brought the case, called the ruling “good news for the [EU] internal market and the free movement of capital”.
“The court confirmed that public authorities should not have special right to privatise companies,” he said.
The VW law was introduced in 1960 as Volkswagen, rebuilt from the rubble of World War II, was being privatised, and was designed to shield the group from foreign takeovers.
But EU authorities felt the law that protected VW dissuaded investors and hindered companies from reaching their full potential, the spokesperson said.
Porsche wants to grow beyond its traditional market to create a truly global group and a takeover of the much bigger VW would result in a dramatic reshaping of Germany’s car industry.
Porsche, the world’s most profitable car company, was tight-lipped about its next move, however, with a spokesperson saying it could increase its VW holding gradually if directors so decided.
The company already holds options to buy the shares needed to attain a controlling stake in VW.
A Porsche statement simply welcomed the judgement and quoted chief executive Wendelin Wiedeking as saying: “With a little more than 30% in VW, we are naturally interested in fully exercising our voting rights.”
The European court ruling nonetheless represents a milestone in efforts to develop open markets.
“Germany has failed to fulfil its obligations in respect of the free movement of capital,” the court said.
Porsche shares jumped on the news, gaining 5,05% to €1 724,40 in afternoon Frankfurt trades while Volkswagen plunged 3,64% to €173,85.
The VW law prevents any shareholder from holding more than 20% of the voting rights and requires strategic decisions to be approved by a majority of at least 80%.
The law also stipulates that authorities in Lower Saxony, the German state where Volkswagen is based, can appoint two members to VW’s supervisory board.
Lower Saxony, the second-biggest VW shareholder with 20,3%, said it “accepts the decision” and would retain its stake.
VW also said it had taken note of the ruling and would study it, but said the next move was up to the German government.
A Justice Ministry spokesperson said it was under “no time pressure” to change the law but added that the authorities “want to do it as soon as possible”.
Meanwhile, Ferdinand Piech, head of the VW supervisory board and co-owner of Porsche, has already given notice that big changes could be expected at the car giant.
The grandson of Ferdinand Porsche, who founded Porsche and also created the groundbreaking VW Beetle, Piech is the driving force between the two carmakers’ rapprochement.
VW is the much bigger group but Porsche is much more profitable.
In 2006, VW sold about 5,7-million vehicles for €104,87-billion while Porsche produced 96 800 sports cars in its fiscal year for €7,27-billion.
Porsche posted a profit of €1,39-billion, versus €2,75-billion for VW, but employs only 11 400 workers, compared with 336 000 at Volkswagen.
The powerful IG Metall union, fearing job losses if Volkswagen is taken over, called on Tuesday for the German government to retain the VW law but re-work it in line with the EU court ruling.—AFP
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