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EU’s top court strikes down VW law

The ruling is a major boost for the European Commission in its crackdown on so-called golden shares, or strategic stakes that give governments special influence over listed companies.

‘Today’s ruling of the European Court of Justice is good news for the internal market and the free movement of capital,’ Commission spokesman Oliver Drewes told a briefing in Brussels.

The law’s demise could also end decades of cosy ties between management and labour at VW in a system called co-determination that gives workers a major say in how the company is run.

The court ruled as expected that the Volkswagen Law broke EU rules because it capped voting rights at 20 percent and let VW’s home state of Lower Saxony veto strategic decisions with just 20 percent of the votes.

Porsche welcomed the ruling that lets the maker of 911 sports cars exercise all of its VW voting rights via its nearly 31 percent stake in Volkswagen ordinary shares.

Porsche has said it has secured enough options to let it ‘significantly’ raise its holding in VW but has declined to say whether this meant it could already gain majority control.

‘There is no decision on how we will proceed. We will take the decision to the supervisory board and this will be a decision for the supervisory board,’ Porsche spokesman Frank Gaube said in Luxembourg.

The next meeting of the sports car maker’s supervisory board is set for Nov. 12, he said, adding he could not say whether the VW issue would be on the agenda.

One source familiar with the matter said it was unlikely Porsche would increase its stake before the end of this year.

Analysts suspect it may await the outcome of Lower Saxony state elections on Jan. 27 before making its next move.

This put an immediate dampener on shares of Volkswagen, which fell 2.6 percent to 175.74 euros by 1027 GMT after briefly rising as much as 2.5 percent following the court’s decision.

Shares in Porsche were up 3.9 percent.

VW said it would examine the ruling’s impact on its statutes, while the powerful IG Metall engineering workers union called on the Berlin government to ensure labour repesentatives on VW’s board could still block plant closures or transfers.

State remains on board

The 1960 VW law stipulated that Germany and Lower Saxony were each entitled to appoint two members to VW’s supervisory board as long as they owned shares.

The German federal government is no longer a VW stockholder, but Lower Saxony is its second-biggest investor and said it intends to keep its VW stake of 20.1 percent.

Porsche said it would be in favour of Lower Saxony’s two board representatives remaining in their positions.

Both Berlin and Lower Saxony said they accepted the court’s decision. The German justice ministry said it would immediately start the process of amending the legislation.

The EU executive is using the court to stop member states using strategic stakes in companies to thwart takeovers.

In June it gave Portugal a final warning to scrap special rights the country holds in two energy companies—Energias de Portugal and GALP Energia.

It also started legal action against Poland over a law giving the state special rights in 15 companies. And it warned Romania over its share in the country’s biggest oil and gas firm, Petrom, a unit of Austria’s OMV.