Not Again: Brussels To Sue Against Legalized Volkswagen Poison Pill

Bertel Schmitt
by Bertel Schmitt

The old Volkswagen law is making headlines again. After three years of silence, the European Commission could drag Germany again in front of the European Court of Justice , Der Spiegel reports. A decision to sue could be made by Wednesday, sources of the German magazine say.

The Volkswagen law was inherited from the days Volkswagen was privatized in 1960. According to the law, no shareholder of Volkswagen could vote more than 20 percent, even if more shares were owned. This was primarily a defense against takeovers. Voting plans are a classical poison pill. Volkswagen’s home state Lower Saxony holds 20.2 percent and can effectively veto any untoward advances.

Brussels took issue with the peculiar “VW law”, and dragged Germany into the EU court. In 2007, the court ruled that the law was in breach of the EU’s principle of free movement of capital. Germany reworked the law in 2008 – in a way:

The illegal cap on 20 percent of the votes was scuppered, but then there was a new clause that requires an 80 percent majority for important decisions. With Lower Saxony holding 20.2 percent, the status quo was preserved: Nothing goes without the Lower Saxony vote. Brussels immediately saw the spirit of the EU court decision violated, and repeatedly threatened to sue. Now, Brussels seems to be ready to pull the trigger.

“Don’t you have more pressing problems?” (or words to that effect) said Lower Saxony’s premier David McAllister, and sent an angry letter to the commission. Reuters obtained a copy:

“People in Germany will not understand why they should provide billions in aid to Greece and other EU member states while the commission pillories VW without sufficient justification.”

“In the current crisis, more than ever, it has become evident how important it is that a company like VW is headquartered in Europe.”

Currently, nobody appears to be lining up for a hostile takeover of Volkswagen, which is firmly in the hands of the Piech clan, with support from the home state government. But you never know. There have been times in the past when the VW share was so cheap that only the poison pill could ward off boarders.

According to Der Spiegel, the EU Commission already has an elegant way to extricate everybody from the imbroglio: If the shareholders agree to the veto right, or to an 80 percent or higher majority, and amend the shareholder agreement as such, then all is kosher, and no court will be needed.

Bertel Schmitt
Bertel Schmitt

Bertel Schmitt comes back to journalism after taking a 35 year break in advertising and marketing. He ran and owned advertising agencies in Duesseldorf, Germany, and New York City. Volkswagen A.G. was Bertel's most important corporate account. Schmitt's advertising and marketing career touched many corners of the industry with a special focus on automotive products and services. Since 2004, he lives in Japan and China with his wife <a href=""> Tomoko </a>. Bertel Schmitt is a founding board member of the <a href=""> Offshore Super Series </a>, an American offshore powerboat racing organization. He is co-owner of the racing team Typhoon.

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  • Sinistermisterman Sinistermisterman on Nov 19, 2011

    Yet another reason why the EU sucks. You want to stop your firm being taken over by the Chinese? You want to protect your country's national interests like manufacturing? TOUGH SH*T. The EU says no. Want to make your own banking laws which protect your nationally important banking sector? TOUGH SH*T. The EU says no. Apart from the free trade bit, the rest of the EU is just an overreaching attempt at creating a Pan-European state without the consent of those living there (pretty much every country in the EU never actually got to vote as to whether to be part of the EU or not).

    • Xeranar Xeranar on Nov 21, 2011

      . . .You made a seriously inverse statement. The EU was created to allow Free Trade. The VW law/clause/rule is protectionist. You can't have it both ways, you're either protectionist or a free trader. The EU's courts are meant to enforce free trade which is what they did. Free trade is really an ineffective system because only the wealthy and powerful benefit from the system that pushes wages down while driving market prices up. A race to bottom is like an eye for an eye, everybody goes blind. As for the EU membership...They agreed to join by treaty which means the people who live in democratic republics agreed with their leaders and didn't reject the treaty after it was signed by electing anti-treaty members. If anything the EU gained power by being successful and lost their way by not creating a majority rule system but instead relied on an absolute vote which is insane amongst 27 sovereign nations.

  • Ronnie Schreiber Ronnie Schreiber on Nov 19, 2011
    “In the current crisis, more than ever, it has become evident how important it is that a company like VW is headquartered in Europe.” I'm trying to make sense of this. The original Reuters' post doesn't give a lot of context. If I didn't know better, I'd say that's a sarcastic remark with an implicit threat of moving VW outside of the EU. Yes, Saxony owns a fifth of VW, but does anyone think that the Piech's care more about their home state than about money? If Akio Toyoda can make noises about moving Toyota out of Japan, VW could make veiled threats to Brussels just as well.
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