EU Court rules 'Volkswagen Law' illegal

Source: Exec Digital USA

Date :10/23/2007 8:56:58 AM

The European Court of Justice ruled illegal today a German law that shields car maker Volkswagen AG from foreign takeovers.

"The Volkswagen law limits the free movement of capital," a court press statement in German said.

It overturned rules capping a shareholder's voting rights at 20 percent and requiring a majority of 80 percent for "important decisions."

Further rejection

It also rejected the right of the German federal government and the region of Lower Saxony to each appoint two members of the board as long as they are shareholders of the company.

"The court declares that these questionable conditions could have a deterrent effect (on bids)," the statement said.

The ruling on the decades-old "Volkswagen law" is being watched as a test case to establish the extent to which EU governments can protect companies they see as vital to their economy. German politicians and labor unions claim the law is needed to protect local jobs.

But the European Commission took Germany to court in 2005, saying it violates the EU's single-market principles.

Volkswagen emerged from the ashes of World War II to become Europe's biggest automaker, with brands from the more affordable Seat and Skoda to the upscale Audi and the stratospherically priced Lamborghini.

The European Commission argued that the law goes against EU rules that guarantee the right to do business anywhere in the 27-nation bloc, and that "golden shares" allowing governments to protect companies have no place in the shared European market.

Share increases

Anticipating the ruling will go against the VW law after the advisory opinion, fellow German automaker Porsche AG increased its holding in Volkswagen to 31 percent, while Lower Saxony raised its stake to 20.36 percent. That means the bloc of Porsche and Lower Saxony could stop any takeover themselves with more than 51 percent combined.

October 23, 2007

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