5th UPDATE: EU Court Rules Portugal's PT Golden Share Illegal
July 08 2010 - 11:16AM
Dow Jones News
Europe's highest court Thursday ruled that the Portuguese
government's golden share in Portugal Telecom SGPS SA (PT) is
illegal, but Spain's Telefonica SA (TEF) could still have a lengthy
wait to get control of their Brazilian joint-venture after Lisbon
said it disagreed with the judicial interpretation of the
ruling.
Portugal used its golden share last month to block Telefonica's
EUR7.15 billion sweetened bid to acquire PT's stake in Vivo
Participacoes SA (VIV), Brazil's largest mobile operator, even
though PT shareholders voted overwhelmingly in favor of a deal.
In its ruling Thursday, the European Court of Justice said the
Portuguese state's holding of golden shares in PT "constitutes an
unjustified restriction" in the free movement of capital and
discouraged investment from operators in other European Union
countries.
But the fight may not be over. Pedro Silva Pereira, Portugal's
Minster of the Presidency, said Lisbon disagrees with the "judicial
interpretation" on which the court ruling was based. The government
in Lisbon will now analyze how it can comply with the ruling while
still taking into account the special rights of the Portuguese
government, he said.
A government official earlier said the court recognized that
there are sufficient grounds "to keep special rights" in companies.
He also said the Portuguese government will continue to pursue the
national interest, echoing recent comments from Portugal's Prime
Minister Jose Socrates.
Over the past few years, the court has taken about a dozen
golden-share decisions, of which just one was in favor of the
country holding on to special veto rights in a 2002 decision that
the national interest of gas supply was important enough for the
Belgian government to maintain its golden share in distributor
Distrigas SA (DIS-BT).
In its ruling Thursday, the ECJ reiterated that golden shares
can be allowed in the interest of national security, but they have
to be proportionate to that very specific objective.
The European Union took the Portuguese government to court in
January 2009, saying the golden share breached one of the main EU
edicts over free movement of capital and couldn't be justified in
the public interest.
The commission's president Jose Manuel Barroso said Thursday the
court ruling confirmed that the commission had been right to oppose
the golden share.
A Telefonica spokeswoman said the court ruling ratifies the
correctness of Telefonica's actions on its offer for PT's stake in
Vivo. However, Telefonica, "reiterates its willingness to reach an
agreement for a possible solution."
Still, Telefonica late on Wednesday opened the door to a
negotiated settlement in its dispute with Portugal Telecom over
control of Vivo.
"Telefonica is willing to continue looking for possible
solutions...so that all the interested parties would feel
comfortable," the Spanish telecommunications giant said.
PT responded in a statement that it was "available to maintain a
dialogue with Telefonica aimed at analyzing options that optimize
the advantages for all parties."
In Lisbon, PT Chief Executive Zeinal Bava told local reporters
Thursday that the ruling from the EU tribunal doesn't directly
involve PT's management. "It's a decision that is above us and that
has nothing to do directly with PT's management," he said.
Meanwhile, the association of Spanish minority shareholders, or
AEMEC, said it welcomed the court decision and called for an
immediate dialogue and talks between the boards of both companies,
calling for a solution that "respects the terms of the offer made
by Telefonica, and its acceptance by PT shareholders."
If talks between PT and Telefonica were to fail, AEMEC said it
will consider legal action against the Portuguese state and PT's
board due to the substantial loss of profit that would result.
PT and Telefonica have been locked in a power struggle over
Vivo, which they control through Brasilcel, a joint venture that
owns 60% of the company. Both companies are increasingly dependent
on emerging economies such as Brazil, where a young population and
low mobile-penetration rates makes it easier to pick up new
wireless and Internet customers.
ING analyst Georgios Ierodiaconou said in a note to investors on
Thursday that he doubts PT and Telefonica "would have publicly
engaged in talks with the explicit intention to 'optimize the
advantages for all parties' without a signal from the Portuguese
Government that there was room for compromise."
At 1442 GMT Telefonica shares were up 1.2% to EUR16.18 while PT
shares were down 0.5% to EUR8.606, among the worst performers on
the PSI-20 index in Lisbon.
-By Mike Gordon and Peppi Kiviniemi, Dow Jones Newswires; +352
691 180 766
(Santiago Pereze and Bernd Radowitz in Madrid contributed to
this article.)
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