The European Union's highest court struck down a German law that shielded Volkswagen from takeover, paving the way for Porsche to take majority control of Europe's biggest carmaker. The ruling is a major boost for the European Commission in its crackdown on so-called golden shares, or strategic stakes that give governments special influence over listed companies.
"The Court confirmed that public authorities should not have special rights in private companies. Special rights have become an ever more endangered species on their way to extinction," Commission spokesman Oliver Drewes told a briefing in Brussels.
The law's demise could also end decades of cosy ties between management and labour at VW in a system called co-determination that gives workers a major say in how the company is run.
The court ruled as expected that the Volkswagen Law broke EU rules on the free flow of capital because it capped voting rights at 20 per cent and let VW's home state of Lower Saxony veto strategic decisions with just 20 per cent of the votes.
Porsche welcomed the ruling that lets the maker of 911 sports cars exercise all of its VW voting rights via its nearly 31 per cent stake in Volkswagen ordinary shares. Porsche has said it has secured enough options to let it "significantly" raise its holding in VW but has declined to say whether this meant it could already gain majority control. "There is no decision on how we will proceed. We will take the decision to the supervisory board and this will be a decision for the supervisory board," Porsche spokesman Frank Gaube said in Luxembourg.
The next meeting of the sports car maker's supervisory board is set for November 12, he said, adding he could not say whether the VW issue would be on the agenda. One source familiar with the matter said it was unlikely Porsche would increase its stake before the end of this year.
Analysts suspect it may await the outcome of Lower Saxony state elections on January 27 before making its next move. This put an immediate dampener on shares of Volkswagen, which fell 3.3 per cent to 174.52 euros by 1224 GMT after briefly rising as much as 2.5 per cent following the court's decision. Shares in Porsche were up 4.8 per cent.
VW said it would examine the ruling's impact on its statutes, while the powerful IG Metall engineering workers union called on the Berlin government to ensure labour representatives on VW's board could still block plant closures or transfers. "The verdict puts the interests of capital markets above those of employees and Lower Saxony," IG Metall local chief Hartmut Meine said.
The 1960 VW law stipulated that Germany and Lower Saxony were each entitled to appoint two members to VW's supervisory board as long as they owned shares. The German federal government is no longer a VW stockholder, but Lower Saxony is its second-biggest investor and said it intends to keep its VW stake of 20.1 per cent.
Porsche said it would be in favour of Lower Saxony's two board representatives remaining in their positions. Both Berlin and Lower Saxony said they accepted the court's decision. The German justice ministry said it would immediately start the process of amending the legislation. The EU executive is using the court to stop member states using strategic stakes in companies to thwart takeovers.
In June it gave Portugal a final warning to scrap special rights the country holds in two energy companies – Energias de Portugal and GALP Energia. It also started legal action against Poland over a law giving the state special rights in 15 companies. And it warned Romania over its share in the country's biggest oil and gas firm, Petrom, a unit of Austria's OMV.
