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Tweedy Browne Goes Gunning at VW

Gail Edmondson Look out Germany Inc., here come the angry U.S. investors. In a development that takes globalization of investor activism to a new level, the powerful U.S. fund manager Tweedy, Browne is mounting an all-out assault on Volkswagen's highest-ranking board member. Tweedy Browne, which played a big role in toppling Conrad Black from his perch as chief executive of media giant Hollinger International (HLR) in 2003, is now going after Volkswagen's legendary supervisory board chairman, Ferdinand Pi?ch.

A former VW CEO and leading member of the family that controls German auto maker Porsche (PSEPF), Pi?ch wields big influence at VW since Porsche bought an 18.53% stake in the carmaker in October. That's a problem for Tweedy Browne, which worries Pi?ch will slow VW's much needed restructuring and use Volkswagen resources to subsidize Porsche operations.

"GO AWAY." The U.S. investment firm also condemns Piëch's final years as VW CEO, when the groundwork was laid for VW's current poor performance. "He was a disaster for Volkswagen in the late 1990s," says Tweedy Browne Managing Director Thomas Schrager. "I want Piëch off the board. I want him to go away and enjoy his billions."

Tough talk for a firm that owns less than 1% of VW's shares and that's taking on a pillar of Germany's corporate elite. Not only does Schrager want Piëch out, he also wants to block Porsche from voting in its own CEO, Wendelin Wiedeking, and its chief financial officer as VW board members. Schrager insists such a move would effectively cede control of VW management to Porsche.

But stopping Piëch will be difficult: Under German corporate law, to prevail at this spring's shareholder meeting, Tweedy Browne would have to garner 75% of the voting shares present at the meeting. Even Schrager concedes that the odds of that happening are slim.

LOBBYING FOR CHANGE. So why bother? Tweedy Browne figures that if it can gin up enough support, shareholder opinion will start to shift against Piëch and eventually thwart the sort of soft takeover of VW by Porsche that it fears. Tweedy Browne's hope: that Piëch will back off, ending the boardroom conflict and allowing VW Chief Executive Bernd Pischetsrieder to get on with cutting jobs and restructuring Europe's largest auto maker.

That, plus a united board, would help boost VW's stock price, now around $55, toward Tweedy Browne's target price of $70. Schrager would also welcome an outright takeover offer for the rest of VW by Porsche that would put a premium on VW shares.

Other U.S. institutions are still on the fence. "There's plenty to be worried about at Volkswagen," says a fund manager with a large stake. "But I wouldn't be worried about this stuff." San Diego-based Brandes Investment Partners, with about a 10% stake in VW -- by far the largest U.S. holder of VW -- declined to comment. Other investors, meanwhile, still think Piëch will back the makeover that VW so badly needs.

NOT WINNING FRIENDS. Tweedy Browne has one ace to play: VW supervisory board member Christian Wulff, representative of the state of Lower Saxony, which owns 18.2% of the carmaker. Also highly critical of Piëch, Wulff commissioned a report by JPMorgan Chase (JPM), which highlighted Piëch's possible conflict of interest and recommended that no Porsche executive sit on VW's board. Wulff, who was approached by Porsche's Wiedeking to resolve their differences, declined comment.

Piëch's maneuvers haven't helped. On Nov. 11 he backed the election of former union leader Horst Neumann as VW's new board member in charge of personnel. VW's five independent board members voted against Neumann, but the board's 10 labor representatives backed Piëch's choice. VW board member Gerhard Cromme, the respected head of Germany's commission on corporate governance, resigned in protest. "If Piëch has made an agreement with the unions to make fewer cuts in return for supporting him, the whole restructuring story at VW is gone," says Schrager.

Piëch isn't commenting. But Porsche's Wiedeking claims to support radical change at VW. And, clearly, so does Tweedy Browne.

Edmondson is a senior correspondent in BusinessWeek's Frankfurt bureau

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