The European Union is preparing to take legal action to force Germany to repeal the law which protects Volkswagen from being taken over.

Christian Wulff, the newly-elected premier of Lower Saxony, where Volkswagen is based says he expects the European Commission to start proceedings as soon as next week to overturn the law.

The law limits any one shareholder's voting rights to 20 percent of the total, even if the shareholder holds a larger percentage of the company's stock. It gives the state government a 20 percent share of voting rights, no matter how little stock it holds — its total is now around 14 percent — and grants the state the power to nominate some members of the supervisory board.