GERMANY/FILE: Advisor to EU's top court says German law protecting car manufacturer Volkswagen from takeovers breaks EU rules.
- 00:00:18
- ITN Source
GERMANY/FILE: Advisor to EU's top court says German law protecting car manufacturer Volkswagen from takeovers breaks EU rules.
A German law that shields Europe's biggest carmaker, Volkswagen, from takeovers, breaks European Union rules by hampering investors, an adviser to the EU's top court said on Tuesday. A decades-old German law that shields Volkswagen from takeovers violates European Union (EU) rules by limiting investor influence in Europe's biggest carmaker, an adviser to the EU's top court said on Tuesday (February 13). The clear-cut opinion gave full backing to the European Commission's drive to stamp out protectionism and remove barriers to mergers and investment in the EU. The news sent Volkswagen shares higher as the market bet VW might now be more vulnerable to a takeover. In Frankfurt, market analyst Fiedel Helmer said: "The VW company will be lead more tightly in the future, oriented on profits. And that could possibly lead to closure of factories or to a closure of unprofitable department. And that will lead to a higher attractivity of the share." Analysts are divided on whether sports car maker Porsche -- VW's biggest investor -- will try to acquire the whole group with the help of up around 8.6 billion euros (11.2 billion U.S. dollars) in funds from a possible capital increase authorised in January. The advocate general, an adviser to the European Court of Justice, said the law hindered the free flow of capital in the bloc by capping voting rights and limiting board seats and could not be justified. The 1960 law, passed to ensure the independence of a privatised Volkswagen, prevents any shareholder from exercising more than 20 percent of the carmaker's voting rights, no matter how large the actual stake. The European Commission welcomed the opinion, which a spokesman said could help to prevent the use of golden shares and special voting rights. While not binding, an advocate general's opinion is still supported by the full court in more than half of cases. "In his opinion the German legislation strengthens the position of the (German) Federal Government and the Land (regional government) of Lower Saxony, preventing any intervention in the management of the firm," the court said. Advocate General Damaso Ruiz-Jarabo backed all three Brussels challenges to the law on the grounds of limiting board seats and voting rights, and public interest justification. The right of the federal government and the Land each to appoint two members to the supervisory board "dissuades those wishing to acquire a significant number of shares in the company", the court statement said. Lower Saxony has a stake of just over 20 percent in VW. Porsche has a 4 percent stake and board approval to increase this to nearly 30 percent. Analysts say scrapping the law would give Porsche enough voting power to block any strategic decisions such as on mergers or plant closures.
ITN Source | February 14, 2007
