Tuesday, February 13, 2007

EU: Volkswagen Law breaks rules

The European Union says the so-called Volkswagen Law "wrongly preventing the free flow of captial". The Law, if struck down, would be a critical blow to Volkswagen. Under the law, no shareholder can exercise more than 20% voting rights, regardless of their level of stock holding. The law, enacted in the 1960s just after Volkswagen was privatized, allowed the State of Lower Saxony and Germany to prevent the risk of a foreign takeover and have say in any politically sensitive decisions. As it stands, Lower Saxony holds 20.1% stake in Volkswagen, giving them 2 seats on the supervisory board.

If this law is struck down, Volkswagen would be open and unprotected against any foreign takeover. Recently, Porsche has purchased 27.4% stake in Volkswagen with the intention that the combined stakes of Porsche, Volkswagen, and Lower Saxony would prevent a foreign takeover.

The EU's inital findings is expected to be the final ruling, which will be made in the next four to six months.

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