The European Union's highest court may dismantle a law protecting Volkswagen AG from takeovers, a move that would give Porsche AG, the biggest shareholder, more control over Europe's largest carmaker.
The European Court of Justice should strike down the 47-year- old law because it „restricts the free movement of capital,” Damaso Ruiz-Jarabo Colomer, an advocate general at the Luxembourg-based court, said in an opinion today. The court, expected to rule within four months, follows the recommendations in most cases.
The so-called Volkswagen Law caps shareholders' voting rights at 20%. Porsche AG, which holds a 27.4% stake, currently has the same voting rights as the state of Lower Saxony, the second-largest stakeholder with 20.5%. „Porsche is now in pole position to engineer full control over VW,” said Stephen Pope, head of equity research at Cantor Fitzgerald in London with a „buy” rating on the shares. „Lower Saxony has to realize that it can only harm German jobs in the long run if it continues to try and obstruct corporate reform.”
Shares of Volkswagen AG rose as much as €1.75, or 2.1%, to €86.88 are were up 0.8% to €85.78 as of 11:19 a.m. in Frankfurt. The law also gives any investor with a 20% stake veto powers over major decisions, such as factory closings and capital increases. The blocking minority percentage would increase to 25% should the court strike down the law. Lower Saxony, the German state where Volkswagen and four of its factories are based, supports retaining the law.
Porsche's supervisory board approved increasing its stake in Volkswagen to 29.9%, the carmaker 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 has argued that a shareholder's influence should correspond to its stake. „Porsche welcomes the recommendation and this confirms our position regarding the Volkswagen Law,” Christian Dau, a Porsche spokesman, said.
The company expects the court to follow the recommendation and rule against the law, he added. Porsche has no plans at the moment to increase its stake, Dau said. In a hearing in December, the European Commission, the EU's Brussels-based regulator, compared the law to special holdings, or „golden shares,” that some countries hold in former state monopolies. The German government argued the law can't be labeled discriminatory because it allows any investor to have a blocking 20% minority.
The German government created the Volkswagen Law in 1960, when the carmaker was privatized, to prevent a takeover. The federal government and Lower Saxony kept a 40% stake, and the remaining 60% was sold to private shareholders. The federal government has since sold its holding. „I am delighted that capital markets have prevailed over misguided national interests,” said Daniel Broby, who helps manage $12.7 billion euros, including 19,625 Porsche shares, as Copenhagen-based chief investment officer at Bankinvest.
Bernd Osterloh, Volkswagen's top labor leader, yesterday criticized efforts to rescind the law, saying it was an „affront to Volkswagen's workforce.” Osterloh, Volkswagen's works council chief, said he was „astonished” by Porsche's statements because the carmaker knew about the law before buying into Volkswagen. „We don't have any comment as we are not a party to this legal process,” Christine Ritz, a Volkswagen spokeswoman, said in a telephone interview from the company's headquarters in Wolfsburg, Germany. (Bloomberg)