German carmaker Porsche is expected to take control of rival Volkswagen after Europe’s highest court ruled a law protecting it from foreign takeovers is illegal.

Until now the law had prevented Porsche from exercising more than 20 per cent of its voting rights over Volkswagen, even though it owns a 31 per cent stake. Porsche is expected to take its stake to 50 per cent, giving it control of Volkswagen.

Wendelin Wiedeking, Porsche chief executive, said his company was “naturally very interested” in being able to fully exert voting rights in Volkswagen.

Porsche shares gained €72.49 or 4.42 per cent to €1,714, while Volkswagen dropped 5 per cent to €175.11 on news Porsche was unlikely to increase its stake this year.

The European Court of Justice (ECJ) said that the law - which dates from 1960 and gives Volkswagen much greater protection than is allowed under general European company law - discourages foreign investors from taking a stake in the German carmaker.

In addition to the rule governing voting rights the law, which the EU first challenged in the courts in 2005, has two main strands.

First, that the German government and the state of Lower Saxony, a major shareholder, are each entitled to appoint two members of the carmaker’s supervisory board.

Second, it states that resolutions proposed at shareholder’s meetings need an 80 per cent majority to be passed, rather than 75 per cent for most other European companies.

The court said that the restrictions infringed the freedom of establishment and free movement of capital, both of which are protected under EU law.

A spokesman for Germany’s Ministry of Justice said it would begin the legislative procedure to change German law “immediately” but declined to give further details.

The decision is expected to have wider ramifications across Europe, where many governments have tried to protect companies they see as vital to their economies from takeovers, particularly foreign ones.

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