Fate of Volkswagen Law on the Brink

by : Natalie Anderson

Volkswagen, Europe's largest automaker and maker of popular brand of auto parts like is once again in the limelight as continuous probing on the legitimacy of VW law surges on.

Volkswagen is a German word for "people's car" and in order to protect public interest, European regulators are planning to reform Volkswagen's ownership law to give each shareholder with a one share one vote privilege.

Last Tuesday the European Union has given the sign that it could make Germany to scrap the law that limits the voting rights in Volkswagen at 20% which in turn hinders any of the stockholders from taking over the company.

According to Advocate-General Damazo Ruiz-Jarabo Colomer, senior adviser to Europe's highest court, the German government was overprotective of Volkswagen up to the extent of "overriding reasons relating to public interest". He also said that the European Court of Justice should abolish the 47 year old Volkswagen law since it tends to impede the flow of free capital.

The European Commission has compared the Volkswagen law with the golden shares that is employed by some nations to protect their state-owned monopolies from takeovers.

The news on the possible eradication of the VW law has pleased investors resulting to an increase in Volkswagen shares by 40 euro cents or 0.7% to 57.68 euros or $75.06 in an afternoon trading in Frankfurt. The news is still not confirmed but it has already given VW with a positive result, just think --what more if the EU highest court already decides to remove the VW law?

If ever the court does abolish the German legislation and makes a ruling on the matter it will open an opportunity for Porsche, Volkswagen's biggest shareholder with a total stake of 27.4% to finally increased its right over the management of the company.

It should be noted that the VW law is the reason why Porsche is not yet pushing through with its plan of increasing its VW stakes to 29.9%. Why? Because even if Porsche has the highest share in VW it will be still gets 20% voting rights similar to that of the German state of Lower Saxony which owns 20.5% of VW stakes.

According to Roman Mathyssek, senior automotive analyst at Global Insight, the Volkswagen law has become irrelevant since two of the automaker's major shareholders are ardent in staying with Europe's largest automaker for a long time. "You still have the state of Lower Saxony and Porsche and these two directionally agree on what they want to do with Volkswagen," Mathyssek added. And if in case the two biggest shareholder of Volkswagen Group has been challenged by a private equity group they would strongly hold on to their stakes since they have been both investing in Volkswagen for the a very long time.