Volkswagen's Takeover Immunity Clause Brought to EU's High Court

Washington DC December 13, 2006; The AIADA newsletter reported that to feed speculation that Porsche may be nearing a possible takeover of German automaker Volkswagen AG, in which it holds a majority stake, Europe's highest court yesterday heard closing arguments in a landmark case that could repeal a 46-year-old clause that provides Volkswagen AG immunity from a shareholder takeover, reports The Wall Street Journal.

The current VW Law prevents individual shareholders from exercising more than 20 percent of the voting rights, grants special rights to the German state of Lower Saxony, where Volkswagen is based, and raises the bar on shareholder decisions to a level that guarantees no single investor can gain control over the company.

The case whether to repeal the Volkswagen Law pits the European Commission's desire to enforce rules on the free movement of capital against Germany's desire to protect jobs and save the country's largest automaker.

A repeal would also open the door for Porsche AG to expand its control over VW, amid speculation that a possible $10.6 billion capital increase at Porsche could fund a takeover of the company. The European Court of Justice is expected to provide a first indication of their ruling on the case Feb. 13.