A European court on Tuesday ruled that a
German law shielding car maker Volkswagen AG from hostile takeovers
is illegal, clearing the way for Porsche AG to increase its
influence _ and possibly take control _ at Europe's biggest car
The decision by the European Court of Justice also is expected to
have wider ramifications across Europe, where many governments have
tried to protect companies they see as vital to their economies from
takeovers, particularly foreign ones.
German politicians and labour unions had argued that the law was
needed to protect local jobs but the court, the EU's highest, said
it was illegal. It ruled that the law limited ``the free movement of
The court also ruled that it discourages foreign investors from
taking a stake in Volkswagen because the German federal government
and the region of Lower Saxony _ a major shareholder _ are able ``to
exercise considerable influence'' over the company.
``This situation is liable to deter direct investors from other
member states,'' a court press statement said.
The law caps a shareholder's voting rights at 20 per cent,
whatever the size of its holding.
In its ruling, the court also rejected the right of both the
German federal government and the region of Lower Saxony, which
holds 20.36 per cent of Volkswagen, to appoint two members of the
board as long as they are shareholders of the company.
For Porsche, which has built up a 31 per cent stake in the
company over recent years in anticipation that the VW law would be
struck down, the ruling gives it carte blanche to take a wider
Porsche chief executive Wendelin Wiedeking said his company was
``naturally very interested in being able to fully exert our voting
rights'' in Volkswagen. However, he did not refer to the possibility
of a takeover _ which many analysts expect.
Between them, Porsche and Lower Saxony already hold more than 50
per cent in Volkswagen _ meaning the door is closed for any would-be
The court said Germany did not explain why it needed to protect
workers by keeping ``a strengthened and irremovable'' stake in
Volkswagen. It also rejected German government arguments that its
special position protected minority shareholders.
Lower Saxony's conservative governor, Christian Wulff, said the
state government accepted the decision.
He said that Lower Saxony would stand by its stake in Volkswagen
and that its aim was ``for VW to be a successful company with high
sales and satisfied employees with secure jobs, particularly at
sites in Lower Saxony.''
``The state government wants to ensure this along with the other
major shareholder, Porsche,'' Wulff said.
The ruling is a triumph for the European Commission, which has
fought several battles against European governments and their
``golden shares'' in critical companies.
European Union regulators take their cue from rights enshrined in
the EU's founding treaty that proclaim basic economic freedoms such
as the right to do business anywhere in the 27-nation bloc.
That right is blocked if governments interfere with companies,
the EU executive said.
It took Germany to court in 2005, and has since lined up or
threatened cases against Spain over allegations it is protecting
energy companies like Endesa SA, Italy for blocking a takeover
attempt of highways company Autostrade SpA, and against Poland for
hindering Italy's UniCredit SpA from consolidating its grip over a
Volkswagen _ German for ``people's car'' _ is one Germany's
best-known companies, renowned for providing well-paid blue-collar
jobs. From the ashes of the Second World War, it has become Europe's
largest automaker, with brands from the more affordable Seat and
Skoda to the upscale Audi and the stratospherically priced
speedsters hand-built by Lamborghini.