Volkswagen Law: Center of Legal Arguments in Europe

By: Natalie Anderson

A senior adviser to the European Union's highest court said last Tuesday that the German government is overprotective of Europe's largest automaker, Volkswagen AG. The judges have already confirmed it that the case raised on the legitimacy of Volkswagen law will affect the national authorities' capacity to protect companies from any plan of takeovers.

According to advocate-General Damaso Ruiz-Jarabo Colomer, "The German government's approach is...not based on overriding reasons relating to the public interest." Although not that binding but the full EU court backs the advocate general in abut 80 percent of the cases.

The EU court has also released a statement stating, "The German law discourages those wishing to acquire a significant number of shares in the company." The ruling is expected to come out later this year. The case on the Volkswagen law is perceive by most people as a sort of test to see up to what extent is the EU government's capacity to protect companies that they deemed important to their economy.

The legal queries on Volkswagen's law are not new since it was started by the European Commission in 2005 when it took Germany to court. Since then the argument on the decades-old law didn't stop. The Volkswagen law was created to protect Europe's largest automaker from a foreign takeover which was seconded by German politicians and labor unions saying that the said VW law will help ensure stability at the company.

"The VW law has proved its value because it has contributed to the wellbeing of the company and its employees," said Juergen Peters, Head of Germany's largest industrial union.

But despite the positive votes it has from Germany's politicians and labor unions, the EU Commission has expressed their objection to the provisions in the 1960 Volkswagen Law which limits a shareholder's voting rights to 20% regardless of the number of VW stakes they owned plus the 80% majority vote for important decisions.

It was last November 2006 when Porsche AG has expressed its willingness to increase its stakes in Volkswagen AG to avoid hostile takeovers of other foreign investors. It should be noted that Porsche owns 27.4% stakes at VW and with the addition of another 30% will allow the former a full takeover bid.

The second largest shareholder of VW is the state of Lower Saxony which is the very same place where the automaker's Wolfsburg headquarters is situated. State Governor Christian Wulff have assured that even if the law is abolish it would have no negative impact on the company since Porsche and Lower Saxony can prevent any takeover attempts. "Porsche's taking a stake in the company means there would be no negative consequences if the VW law is struck down," explained Wulff in an interview with Neue Presse daily.

Volkswagen is Europe's largest automaker and maker of the famous . Its headquarters is in Wolfsburg, Germany. VW is currently ranked fourth in the world's largest automaker next to GM, Toyota, and Ford.

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