By Karin Matussek
Nov. 6 (Bloomberg) -- Porsche SE, the maker of the 911 sports car that plans to take control of Volkswagen AG, will ask a German court today to overturn a rule allowing the government to limit Porsche's influence over Europe's largest carmaker.
Porsche, which holds shares and options equal to a 74.1 percent stake in Volkswagen, filed suit in Hanover after failing to overturn provisions in the corporate charter at an April shareholder meeting. Porsche says the change is required after a European Union court told Germany to amend its so-called Volkswagen law giving the state of Lower Saxony similar rights.
If the court strikes down the rule, Porsche could push for a ``domination'' agreement and tighten its grip on Volkswagen. Porsche would be able to alter Volkswagen's nine-brand structure that includes luxury carmaker Audi and Skoda in the Czech Republic and gain full access to its books, said Ferdinand Dudenhoeffer, director of the Center for Automotive Research at Gelsenkirchen University.
``It's a full-scale takeover, Porsche would be entitled to redefine Volkswagen,'' Dudenhoeffer said.
Shareholders of German corporations that own a 25 percent stake can block major decisions, including domination agreements or charter amendments. The required percentage for the veto rights can be changed by shareholders. At Wolfsburg, Germany- based Volkswagen, the percentage was set at 20 percent by both the Volkswagen law and the corporate charter.
Shares Jump
Volkswagen shares jumped fourfold a week ago after Porsche said on Oct. 26 it secured shares and options for the 74.1 percent stake and will eventually acquire 75 percent, ``paving the way'' to a domination agreement in 2009. The move forced short-sellers to buy from a shrinking pool of Volkswagen shares to close their positions. Short-sellers borrow shares and then sell them on the hope that the price will fall.
``We expect to get legal clarity on the blocking minority percentage issue,'' said Frank Gaube, a spokesman for Stuttgart, Germany-based Porsche. Peik von Bestenbostel, a spokesman for Volkswagen, declined to comment while the case was pending.
A domination agreement ``is the typical tool under German law to secure control if you can't acquire 100 percent of a company,'' said Adrian Mueller-Helle, a corporate lawyer in Berlin. ``And that's the situation Porsche is facing with the Lower Saxony stake.''
Lower Saxony, which owns 20.1 percent of Volkswagen, has enjoyed a special status as a minority shareholder for years because of the Volkswagen law. The European Court of Justice ruled last year the law isn't compatible with European Union principles, because it applies to only one company and favors the government.
Separate Document
The EU court only ruled on the German law, giving Volkswagen and Lower Saxony room to argue that the charter provision wasn't affected, said Ulrich Noack, a Dusseldorf University professor of corporate law.
``The EU court forced Germany to change the VW law, but it didn't rule on Volkswagen's charter, which is a separate legal document,'' Noack said in an interview. ``Even if you'd abolish the VW law altogether, the 20 percent blocking minority could well survive.''
Walter Bayer, who teaches corporate law at the University of Jena, Germany, said that while corporations are free to adopt a 20 percent blocking minority, Volkswagen shareholders were never given an opportunity to change the rules.
Shareholders' Choice
``Porsche can ask the court to annul the clause, because it didn't become a valid part of the charter in the first place,'' Bayer said. ``Only shareholders who can autonomously decide are free to raise the threshold, but the Volkswagen shareholders weren't free as long as the VW law was in place.''
The German federal government, siding with Lower Saxony, claims that the EU court ruling forced Germany to drop only two other parts of the Volkswagen law: guaranteed board seats for Lower Saxony and a limitation of voting rights of shareholders to 20 percent regardless of their stake.
``We've always said that the 20 percent blocking minority is in line with the EU court's ruling,'' said Nina Hacker, a Lower Saxony government spokeswoman. ``There will be no domination agreement at Volkswagen, thanks to our blocking minority -- and that's the way it will stay.''
A new draft of the Volkswagen law which kept the 20 percent rule hasn't won over EU Internal Markets Commissioner Charlie McCreevy, who has threatened to take the issue back to court.
``The government knows very well that it doesn't have a chance to keep this in the VW law,'' said Bayer, of the University of Jena. ``They are doing it just to save time to put off the required steps.''
Bayer and Noack agree that any ruling over the charter will be appealed. The Hanover court may also ask the European Court of Justice for guidance. A final ruling won't come before 2010, Noack said.
To contact the reporter on this story: Karin Matussek in Berlin at kmatussek@bloomberg.net
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