Porsche Waiting for Eus Court Legal Opinion

By: Natalie Anderson

Porsche AG's decision on raising its stakes in Volkswagen AG, Europe's largest carmaker and brand of popular auto parts like , will depend on the advisory opinion that will be released next week by the European Union's highest court. The opinion on the legality of the so-called Volkswagen law which protects the automaker from possible takeovers and limits the voting rights of shareholders to 20% regardless of the size of their stake will be published on February 13, 2007.

The European Court of Justice in Luxembourg which in most cases follows its advocates-generals' advice is expected to rule in the next six months. Porsche, which is to date the largest shareholder in Volkswagen with 27.4% stake and soon to increase to 29.9% upon the approval of the board, would like to be given more privileges especially with regards to Volkswagen's management.

In the year 1960 there was a decision passed against the so-called Volkswagen's law which would have given Porsche the decisive vote in Volkswagen's management decision and signals a possible takeover move by the automaker stated Stephen Pope, the head of equity research at Cantor Fitzgerald Europe in London. He also added, "The time has now come where Volkswagen law has to be curtailed in line with 21st century market economics. Porsche is on the cusp of where it has 30% and this will clear the way toward a full acquisition."

Lower-Saxony is where Wolfsburg-based Volkswagen and four of its factories are based and the automaker's second largest shareholder with a stake of about 20%. The Volkswagen law allows any investor with a 20% stake veto powers over major decisions such as those that concerns factory closing and capital increases.

It should be noted that during the December 12, 2006 hearing, the European Commission, EU's Brussels-based regulator in a court hearing, restricts the free movement of capital, comparing the law to special holdings, or "golden shares" that some countries hold in former state monopolies. The court has agreed with the regulator in such cases in the past and even forced countries like France, UK and Spain to give up these powers.

Last year the German government told the EU court that the law just can't be labeled discriminatory simply because an investor is given a limited 20% minority right. The supervisory board of Porsche maker of the remarkable 911 Carrera, has approved increasing its stake in Volkswagen to 29.9% as of last November 15, 2006. A month after, Porsche CEO Wendelin Wiedeking has told reporters that there were no immediate plans for a complete takeover of Volkswagen but its not ruling out the possibility of an eventual offer.

Porsche wants the Volkswagen Law overturned since it gives the government a significant influence on the management of Europe's largest automaker and hinders the shareholder's own voting power to reflect its stakes. And according to Porsche Spokesman Frank Gaube, "The Volkswagen law is an anachronism." The case is C-112/05 Commission v Germany.

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