Volkswagen court ruling sounds death knell for the golden share

The heyday of the golden share is over, the European Commission said yesterday, after the EU's highest court was advised to scrap a 47-year-old law protecting the German car maker Volkswagen from takeover.

In a key legal opinion issued yesterday, an Advocate General at the European Court of Justice argued that the so-called Volkswagen law, which caps shareholders' voting rights at 20 per cent, contravenes EU rules on the free movement of capital.

If confirmed by the European Court, the finding would require the German government to change or axe the law and would seal a victory for Porsche, giving it more influence over the running of the company - and possibly prompting a takeover bid.

Porsche owns 27.4 per cent of VW but, because of the law, has the same voting rights as the German state of Lower Saxony, the second-largest shareholder with 20.5 per cent of the stock.

The case is being seen as a litmus test of the effectiveness of the European single market.

Yesterday Oliver Drewes, a spokesman for the European Internal Market Commissioner, Charlie McCreevy, said that "less and less countries are having golden shares". He added that, while the Commission may still take action against more member states, "the general trend is that golden shares are out. They are not very popular any more".

Yesterday's statement, by Damaso Ruiz-Jarabo Colomer, is an advisory opinion which the European court will use as a guide in deciding whether the German law conforms with EU rules. In most cases the court endorses the view of the Advocate General.

The German government created the Volkswagen Law in 1960, when the car maker was privatised, to prevent a takeover. But Berlin argues that the law is not discriminatory because it gives any investor with a 20 per cent stake veto powers over major decisions, such as factory closures and capital injections.

In his statement, the Advocate General said that the law deterred investors from acquiring more than a fifth of the capital because they would have no voting rights above that ceiling. Moreover, any proposed changes to the company could be blocked by Lower Saxony.

Rachel Bickler, a solicitor from Nabarro Nathanson in Brussels, said: "If the Court's final judgment, which is due out in several months, follows the Advocate General's recommendations, it will open the doors for a potential bid for control of Volkswagen. The case also has wider implications for other companies around Europe where national and local governments hold similar rights."