EU court ruling could lead to Porsche takeover of VW

The European Court of Justice is expected to decide on Tuesday about a 47-year-old German law which EU regulators say shields Europe's largest automaker from takeovers.

Most analysts expect the Luxembourg court to follow a preliminary ruling by the court's advocate general in February that the 'VW law' was illegal and should be scrapped.

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If it does, Porsche is expected to increase its 31-per-cent stake in Volkswagen and take control of the company. At present shareholders' voting rights are capped at 20 per cent, regardless of the number of shares held.

Scrapping the law would also limit the influence of the state of Lower Saxony in key decisions at the carmaker. Lower Saxony is the second biggest investor and the region where VW has its Wolfsburg headquarters.

Porsche has already ploughed about 5 billion euros (7 billion dollars) into Volkswagen. It was forced to make a mandatory takeover offer in June after it built up its 31-per-cent stake, but the move was rejected by stockholders because it fell well short of the market price of VW shares.

If Porsche takes control of VW it would oversee a group that not only includes Volkswagen models but also the Seat and Skoda brands as well as luxury marques like Bentley and Lamborghini.

It would also give Porsche a say in the running of truck-makers MAN in Germany and Scania in Sweden because of VW's position as the biggest shareholder in both operations.

For Ferdinand Piech, a former chief executive officer of Volkswagen and its current supervisory board chairman, the move would crown his life's work.

The 70-year old is also a major shareholder in Porsche and the grandson of Ferdinand Porsche, the man who founded the sports carmaker and developed the Volkswagen Beetle.

But the new strongman will be Porsche boss Wendelin Wiedeking, a no-nonsense cost-cutter who has already set up a new company called Porsche Holding for the period after a VW takeover.

The first challenge to his authority could come from the works council representing Volkswagen's 324,000 employees. It is unhappy with a new arrangement that gives Porsche's 12,000 workers the same voting rights in company decisions as the much bigger VW contingent.

The Volkswagen works council has taken its objections to a labour court, which is scheduled to discuss the issue a day after the European court hands down its decision.

The VW law was introduced in 1960 following the privatization of Volkswagen. Its original aim was to protect the company from hostile foreign takeovers.

VW human resources maorst Neumann does not foresee any disadvantage for the company if the law is scrapped.

'Such an outcome would no doubt strengthen Porsche's interest in Volkswagen. Luckily it is the interest of a shareholder that has a long-term industrial interest in Volkswagen,' he said.

'Volkswagen has become Europe's biggest automaker, Porsche the most profitable carmaker worldwide. Two successful companies are joining together,' Neumann told the Berliner Zeitung newspaper.