A once in a lifetime opportunity for German companies starts on Tuesday.

From 1 January 2002, the capital gains tax which - in its present form - discourages them from selling stakes in other German firms will be scrapped.

A wholesale revamp of the country's takeover law also comes into force.

Whole new world

The changes amount to one of the biggest ever shake-ups of the German corporate landscape.

In the early post-war years, the giants of the German economy - companies such as Deutsche Bank, Hoechst and Volkswagen - grew partly with the help of a cross shareholding structure.

Big businesses and banks invested heavily in each other's fortunes.

The complex web helped sustain an image of Germany as an impenetrable economic fortress, its industrial titans immune from takeovers from outside.

But now the tax which glued this structure together is being scrapped.

"It is not going to mean the corporate landscape changes overnight; in fact it almost certainly won't," said Kelly Tonkin, an economist at Lehman Brothers.

"But what it does mean is that many German firms will be able to re-examine their whole balance sheet. In the past there were these big shareholdings that in essence they couldn't do anything about."

Time to act?

So for stock market investors and the companies themselves, this represents a significant opportunity.

That does not mean, however, that the biggest shareholders are going to embark on an immediate flurry of deals.

Advisers will take time to consider the impact of new take-over rules which also come into law on 1 January.

They allow German companies greater scope to defend against hostile deals, such as Vodafone's pounce on Mannesman in 1999.

Old ways still hold

But experts say they also do much to enshrine shareholding culture into German law.

"All of this is helpful to creating an environment where deals are seen as quite normal," said Henrich Schleeman, managing director of Hawkpoint Partners.

"It's normal for a company to consider its options, it's normal for a company to consider its defences and exploit their opportunities to take advantage of undervalued situations."

Of course, the changes still fall short of what many investors would like - a level playing field for mergers and acquisitions across Europe.

Germany blocked that at the last attempt. And the chances of Berlin changing its mind any time soon look slim in the extreme.