German state seeks VW talks over Piëch

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Christian Wulff, the premier of Lower Saxony which is the second biggest shareholder in Volkswagen, will meet the carmaker’s largest institutional investors by the end of February to gauge their support in his battle with Ferdinand Piëch, VW supervisory board chairman.

Mr Wulff will meet US investors including Brandes Investment, Capital Group, Templeton and Tweedy Browne – who together represent nearly 15 per cent of VW’s share capital – ahead of May’s annual meeting, corporate governance experts and shareholders said.

Mr Wulff has declared himself opposed to Mr Piëch, who is also a large investor in Porsche, the sports carmaker which recently became VW’s biggest shareholder with 18.6 per cent. Lower Saxony holds an 18.2 per cent stake.

People close to Mr Wulff have indicated that he is opposed to Porsche seeking board representation, and believe he will gain a majority at the annual meeting. However, some shareholders are sceptical and say he may seek a compromise with the carmaker.

“My fear is that Mr Wulff is right now eating a sausage with Mr Piëch, and the rest of us are just fodder,’’ said one leading investor. “All this depends on Wulff and he has elections coming up, so how is he going to justify to his electorate that he backed foreign investors instead of fighting for their jobs,’’ said another investor.

People close to Mr Wulff floated the idea more than a month ago that a compromise could be to allow Porsche to have one board seat next year and a further one if Mr Piëch retires on schedule in 2007.

Tweedy Browne and two large German funds – Union Investment and DWS – have spoken out publicly against the impact of the Porsche investment on VW’s corporate governance due to Mr Piëch’s alleged conflicts of interest.

Tweedy Browne has said it has started talking to other shareholders about forcing out Mr Piëch and suggested Heinrich von Pierer, chairman and former chief executive of conglomerate Siemens, as a possible replacement.

Porsche should have one seat on the board, a position occupied by Mr Piëch, Tweedy believes.

Porsche has dismissed the criticisms as “nonsense” and made clear it will seek two board seats in addition to Mr Piëch after spending more than €3bn on its VW investment.

Porsche, which has an option to increase its holding to 22 per cent, will nonetheless go into the annual meeting with at most a 1.8 per cent advantage over Lower Saxony due to the so-called VW law, which limits any shareholders’ voting rights to 20 per cent no matter the size of the stake.

If Lower Saxony does decide to vote against Porsche, the crucial votes will be those of Brandes and Capital, which together own 11 per cent of VW.

Capital’s position is complicated by the fact it is also a recent large investor in Porsche’s preference shares.

Representatives of Mr Wulff declined to comment.

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