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Last Updated: Sunday, 25 March 2007, 09:12 GMT 10:12 UK
Porsche to increase its VW stake
The new VW Golf GTI
VW is Europe's biggest car maker
Porsche has announced plans to increase its stake in fellow German carmaker Volkswagen (VW) from 27.3% to 31%, but said it was not after a full takeover.

Under German law, Porsche will have to bid for all of VW when its stake goes above 30%, but it has moved to ensure most VW shareholders turn it down.

To make sure it only has to buy the extra 3.7% of VW that it wants, Porsche is offering a low price for the shares.

Porsche is raising its stake in VW to boost its control over its compatriot.

Minimum amount

Porsche said in a statement that it would only be offering the minimum amount legally required for VW shares, which is likely to be 14% below VW's Friday closing price of 117.70 euros.

"We do not expect many Volkswagen shareholders to offer us their shares," said Porsche spokesman Michael Baumann.

"Which means simply that we intend to go to 31%. We do not by any means intend to take over."

Porsche, the world's most profitable carmaker, is expected to start buying the extra 3.7% of VW shares on Monday.

VW is Europe's largest carmaker, and in addition to the VW name, it owns other brands including Audi, Skoda and Seat.

'Volkswagen law'

Porsche's move comes at a time when the European Union (EU) appears to be preparing to revoke a German law that protects VW from takeovers.

Under the so-called "Volkswagen Law", any shareholder in VW cannot exercise more than 20% of the firm's voting rights, regardless of their level of stock holding.

The European Court of Justice has already said in a preliminary ruling that the law breaks EU rules, and a full judgement to that effect is expected later this year.

The likely end to the Volkswagen Law would leave VW open to possible foreign takeover, and some analysts say that is why Porsche is moving to increase its stake in VW at this time.

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