Porsche set for VW buy-out

Volkswagen's days as an independent company are numbered, after a European court overturned a law protecting it from takeover and clearing the way for a Porsche buy-out.

The long-anticipated ruling by the European Court of Justice is a victory for the European Commission after protracted legal battle with Berlin. It will have implications for the so-called "golden shares" practice used to shield many leading European companies.

It opens the door to Porsche, which already holds at least 31 per cent of Europe's largest car company, to acquire a majority stake in the near future.Increasing its stake to 51 per cent would make VW a wholly-owned subsidiary of a new Porsche-controlled holding company, and end the unique co-determination model that has ruled at Volkswagen since 1960.

Then, during a part-privatisation of the company, Bonn created the so-called "Volkswagen Law" to limit outsider influence to 20 per cent, regardless of their shareholding.Berlin's obligations under EU law are to ensure the free flow of capital to encourage cross-border investment. German officials reacted with disappointment but little surprise to the ruling, promising to "start work immediately" to change the law.

VW's chief employee representative Bernd Osterloh urged Berlin yesterday to reform, not abolish the VW law. The federal state of Lower Saxony, where VW headquarters is based, said it would retain its 20.1 per cent stake. But after decades of steering the Wolfsburg-based company with its blocking veto, the state government in Hanover will now have to take a back seat. The ruling was celebrated as a victory for Ferdinand Piech, the head of VW's supervisory board and grandson of the founder of Porsche. Dubbed "Germany's most cold-blooded manager", the 70-year-old urged his relations in Porsche, in which he holds a 13 per cent stake, to begin buying up VW shares two years ago.

Initially, VW unions welcomed the plan, seeing in Porsche a saviour from international investment funds they feared would force through drastic rationalisation to squeeze out extra profits. Porsche and Volkswagen collaborate in R&D, and VW builds engines for Porsche-brand vehicles, such as the Cayenne.

Now unions fear Porsche was a wolf in sheep's clothing. Piech's long-term aim is for a much closer co-operation of all subsidiaries - Porsche, VW, Audi, Skoda and Seat - to create a European equivalent of, and rival to, Toyota.

VW worker representatives have only a limited say in future strategy. Today VW's worker representatives will file suit against these plans to limit their say in the new company, a case that could poison relations with Porsche management.

But unions have weak cards: the VW co-determination model they are defending has been discredited in recent years. Several leading managers were convicted of corruption, paying for business trips and prostitutes to seal deals with union officials.

But industry analysts have warned Porsche not to overplay its hand, saying that reforms implemented by the recently-departed VW executive Wolfgang Bernhard were a step in the right direction.