Porsche AG's decision whether to raise its stake in Volkswagen AG, Europe's largest carmaker, may be influenced by an advisory opinion from the European Union's highest court next week.
The opinion on the legality of Germany's „Volkswagen law,” which protects Volkswagen from takeovers and caps shareholder voting rights at 20% regardless of the size of the stake, will be published on February 13. The European Court of Justice in Luxembourg, which follows its advocates-generals' advice in most cases, is expected to rule in the next six months. Porsche, the largest shareholder in Volkswagen with a 27.4% stake and board approval to raise it to 29.9%, is seeking more say in the carmaker's management. A decision against the law, passed in 1960, would give Porsche the decisive vote in Volkswagen management decisions and trigger a possible takeover move, said Stephen Pope, the head of equity research at Cantor Fitzgerald Europe in London. „The time has now come where the Volkswagen law has to be curtailed in line with 21st century market economics,” Pope said. „Porsche is on the cusp of where it has 30% and this will clear the way toward a full acquisition.” Lower Saxony, where Wolfsburg-based Volkswagen and four of its factories are based, is the carmaker's second-largest shareholder with a stake of about 20%. The Volkswagen law gives any investor with a 20% stake veto powers over major decisions, such as factory closings and capital increases.
The European Commission, the EU's Brussels-based regulator, said in a December 12 court hearing that the legislation restricts the free movement of capital, comparing the law to special holdings, or „golden shares,” that some countries hold in former state monopolies. The court has agreed with the regulator in such cases in the past and forced countries including France, the UK and Spain to give up these powers. The German government told the EU court last year that the law can't be labeled discriminatory as any investor can have a blocking 20% minority. The supervisory board of Porsche, the maker of cars including the 911 Carrera, approved increasing its stake in Volkswagen to 29.9%, the Stuttgart, Germany-based company said November 15. Porsche CEO Wendelin Wiedeking told reporters in December there were no immediate plans for a complete takeover, without ruling out an eventual offer. Porsche wants the Volkswagen law overturned as it gives the government a disproportionate influence and doesn't allow the automaker's own voting power to reflect its stake, Porsche spokesman Frank Gaube said by telephone February 5. „The Volkswagen law is an anachronism,” Gaube said. The case is C-112/05 Commission v Germany. (Bloomberg)