Wednesday, October 24, 2007

Porsche take over of VW now possible due to changes in VW Law.

It is no secret that Porsche has been buying up stake in Volkswagen for the last year. Though a piece of legislation called the VW Law has been the only thing to prevent the sports car builder from completely take over Europe's largest automaker. Currently Porsche has a 31% stake in VW, but with news today of the European Court striking down the VW Law, many expect the company to quickly increase its stake to a controlling 51%.

The VW Law itself dates back to 1960, and while a bit complicated to understand, basically stipulates that 80% shareholder approval is required to pass major decisions and regardless of how much stake a single entity holds, its voting block cannot be greater than 20%. Since the company's home state of Lower Saxony owns 20.1% of VW, it alone holds the power to influence the company's decision making. Under the VW Law, Lower Saxony has the power to block any decision that would threaten its jobs and the local economy. Thus, Porsche's desire to own a controlling stake in VW has been blocked by Lower Saxony as well as its inability to use the full force of its 31% stake in voting.

Though two separate companies, Porsche and Volkswagen share a long history dating back to Dr. Ferdinand Porsche who was the designer of the Beetle, as well as the Auto Union Silver Arrow race cars. Much of the leadership at VWAG are also direct descendants of Dr. Porsche as well. Dr. Ferdinand Piech is Dr. Porsche's grandson. Though the family ties do not end there. Volkswagen and Porsche have collaborated on many projects. The Porsche 914, 924 & Cayenne were all joint developments between the two companies.