ECJ rules ‘golden shares’ illegal, May 2003

EU governments cannot retain control of privatised companies using 'golden shares' or other legal mechanisms, according to the European Court of Justice. In its judgments on Cases C-463/00 and C-98/01 (Commission v Spain and Commission v United Kingdom), issued on 13 May 2003, the Court found Spain and the UK guilty of infringing the principle of free movement of capital - a cornerstone of the Single European Market.

The Financial Times' opinion was that the Court's decisions were a blow against privatisation:

'the European Union's highest court has set out the full consequences of privatisation more clearly than ever before.

The verdict will have consequences for businesses and governments throughout the EU. Yet it can be summarised in two words: “Let go”.'

Although there seems little chance of the Commission pursuing golden share cases where the companies are defence-related (such as Rolls Royce and BAE Systems) there are other cases pending against Denmark, Italy, the Netherlands, Spain and Germany - where national car maker Volkswagen is legally protected from hostile takeovers. The judgement is also expected to be of particular interest to the French Government, which is considering the partial privatisation of both Electricité; de France and Gaz de France.

The Court acknowledges that Member States are justified in maintaining some influence in undertakings which were originally public, but later privatised where they 'are active in fields involving the provision of services in the public interest or strategic services.' However, as the Financial Times pointed out: 'Even in those cases where essential public services are concerned - such as electricity or telephone connections - the state's role has to be the absolute minimum.'

In the case involving Spain and Spanish Law 5/1995 on 'the legal arrangements for disposal of public shareholdings in certain undertakings', the Court of Justice found that two of the companies concerned - a tobacco company, Tabacalera, and a commercial banking group, Argentaria - were not involved with the provision of public services.

In the cases of three other companies, Repsol (petroleum), Endesa (electricity) and Telefónica (telecommunications), the Court endorsed 'the objective of safeguarding supplies of such products or the provision of such services in the event of a crisis where there is a genuine and sufficiently serious threat to a fundamental interest of society', but said the measures for government control were excessive.

In the case involving the UK, the government holds a so-called 'golden share' in airport operator BAA which gives it the final say in decisions such as winding-up the company or selling an airport. Following the Court ruling that the golden share is illegal, UK sources, including the BBC, expressed concern that the BAA - which owns Heathrow and Gatwick airports - could be vulnerable to a hostile takeover bid.

Links:

European Commission:
	13.05.03:	The Court finds against the Spanish and United Kingdom rules regulating special shares (“golden shares”) [CJE/03/37]
BBC News Online:
	13.05.03:	BAA 'golden share' ruled illegal

Eric Davies
Researcher
Compiled: Wednesday, 14 May 2003

The European Court of Justice ruled on 13 May 2003 that Spain and the UK had infringed the principle of free movement of capital - a cornerstone of the Single European Market. Keywords: BAA; Repsol; Telefonica; Endesa