Europe's highest court threw out Tuesday a German law that protects Volkswagen against takeovers, paving the way for Porsche to tighten its grip on the wheel of the continent's biggest carmaker.
The European Court of Justice ruled against the “Volkswagen Law,” thus allowing Porsche to exercise voting rights in line with its 31-percent stake in VW and raising the chances of a takeover bid.
Porsche has made no secret of its desire to grow beyond its traditional luxury sports car market to create a truly global group. A takeover of the much bigger VW would completely reshape Germany's car industry.
But Porsche, the most profitable car company in the world, was tight-lipped Tuesday about its plans.
It merely welcomed the judgement in a short statement which quoted chief executive Wendelin Wiedeking as saying: “With a little more than 30 percent in VW, we are naturally interested in fully exercising our voting rights.”
The court ruling also represents a milestone in European efforts to develop truly open markets.
“Germany has failed to fulfil its obligations in respect of the free movement of capital,” the European court said in its ruling on the case, brought by the European Commission.
Porsche shares soared after the decision was announced, gaining 4.29 percent to 1,711.99 euros in Frankfurt trades, while Volkswagen slipped by 0.31 percent to 179.86 euros.
The VW law was introduced in 1960 as Volkswagen, which was founded by the Nazi regime before World War II, was being privatised, and was designed to shield the company from foreign attempts to control it.
The crux of the law is that regardless of the amount of capital it owns, a shareholder cannot hold more than 20 percent of the voting rights in a company.
The law also stipulates that the authorities in Lower Saxony, the German state where Volkswagen is based, can appoint two members to VW's supervisory board, allowing them to block the majority needed to adopt resolutions.
Lower Saxony is the second-biggest investor in VW with 20.3 percent of the capital.
Porsche said Tuesday that the two Lower Saxony board members were welcome to remain on the VW board.
But Porsche had long railed against the restriction on its voting rights.
The Luxembourg-based court pointed out that the free movement of capital may be limited by national measures “that are justified by legitimate interest.”
But it ruled that Germany has “failed to explain why the provisions at issue are necessary to protect the interests.”
The creation of a group with global reach would fulfil a dream long held by Ferdinand Piech, head of VW's supervisory board and co-owner of Porsche.
Once the German law is changed, Porsche will enter a “decisive” phase in its attempt to take control of VW, Wiedeking said recently, while Piech has also given notice that big changes could be expected at the car giant.
The grandson of Ferdinand Porsche, who founded Porsche and also created the mould-breaking VW Beetle, 70-year-old Piech is the driving force between the two carmakers' rapprochement.
Workers have always had a strong voice at Volkswagen, and benefit from advantageous working conditions thanks to collective bargaining agreements.
But under a proposed arrangement, if a takeover occured, VW workers would only have three seats on Porsche's supervisory board, equal to representation by Porsche employees but down from the 10 they currently control at Volkswagen.
