European Court of Justice Overturns Germany's 'Volkswagen Law'

The demise of Germany’s “Volkswagen Law” on Tuesday bolstered the cause of companies such as Porsche AG and Austria’s OMV AG already battling government meddling in takeover attempts.

The European Court of Justice said the 47-year-old law, which prohibited any single shareholder from exercising more than 20 percent of the carmaker’s voting rights to stymie takeover attempts, was illegal since it prohibited the free movement of capital within the European Union.Although the German government no longer holds shares in Germany’s biggest carmaker, the state of Lower Saxony maintains its 20 percent investment as well as two seats on Volkswagen AG’s supervisory panel. Still, the federal German government had argued that the law didn’t prohibit the movement of money since anyone could buy shares and analysts concluded it did little to protect against a takeover since a suitor could assign shares to allies for voting purposes.”I think it is a very important case for the Commission,” said Michael Schuette, a Brussels-based antitrust partner with Howrey LLP. “Lower Saxony as a matter of law now no longer has a blocking minority, which of course makes it a lot more attractive for other companies like Porsche to actually take the majority or even full control of VW shares.”Earlier this year, Stuttgart-based Porsche confessed to an interest in VW, ostensibly to protect a valuable supplier from a takeover bid. (The two companies cooperate on parts manufacturing and the production of the Cayenne and Touareg sport utility vehicles.) Porsche bought a minority stake in VW and said it hoped to eventually snap up a majority, but not until the VW Law had been repealed so that it could weigh in on strategic decisions.The luxury sports car maker now holds 31 percent of VW, and analysts think it’s likely the company has secured even more through options. Porsche has been given a green light from German regulators to buy up to 49 percent of Wolfsburg-based VW without making an announcement.Beyond clearing the way for Porsche to pick up more of VW, the move is seen as the death knell for golden shares across Europe and as further proof of the increasing authority of competition watchdogs at the European Commission.On a separate dealmaking front, Vienna-based oil group OMV is embroiled in a public cross-border approach for state-owned Hungarian rival Mol Nyrt in hopes of expanding in oil-rich Eastern Europe. MOL has resisted OMV’s $19 billion indicative offer and is protected by a government veto right and articles of association that prevent any single shareholder from exercising more than 10 percent of the group’s voting rights.”We believe that this ruling supports our view that the type of voting cap applied in MOL’s articles of association is a direct obstacle to the free movement of capital and that it contravenes EC law,” the company said in a statement Tuesday.Hungary also recently passed legislation giving the government powers to deny bids for companies that have a role in national security. The EC has pledged to review the new law, though Budapest denies it was passed in response to OMV’s overtures.With both Lower Saxony and the German government pledging to adhere to the court’s ruling, VW shares fell 6.4 percent, or �11.47, to �168.95 ($240.80) after gaining 64 percent in the past six months on hopes Porsche would move to buy all of the company.Porsche shares gained 3.9 percent, or �63.50, to close at �1,705.01 Tuesday.