We would like to ensure that you are still receiving content that you find useful – please confirm that you would like to continue to receive ILO newsletters.
28 May 2008
Golden shares have been the subject of much debate in Europe over the last decade. Increasingly, European governments have been selling off formerly state-owned companies which provide services of general economic interest - specifically, utility companies. Although the governments are willing to reduce substantially their stake in the share capital of these companies, they are unwilling to allow the new owners to take over the actual management of the company or to take all crucial decisions. To this end, the governments have availed of the golden share mechanism, which grants them greater rights in the decision-making process of the company than those corresponding to their shareholding. A typical example is the right to veto decisions on specific issues or to appoint a specific number of members of the board of directors - sometimes even the majority.
The European Court of Justice (ECJ) has ruled on the compatibility of the golden share provisions of many European countries with the EC Treaty provisions on freedom of establishment and freedom of capital on a number of occasions. In most cases the ECJ has ruled that the specific golden share provisions:
The only member state whose golden share provisions managed to survive the ECJ's scrutiny is Belgium.
Although in the past the Greek legislature has introduced certain concepts which are similar to the golden share, the case that made the Greek state respond most proactively in this regard involved the Greek Telecommunications Company (OTE), a listed company.
A Greek company financed by a fund originating in Dubai managed to acquire a 19.9% shareholding in OTE through the stock exchange. The Greek state, which owns a minority percentage in the company, panicked when it realized that a fund originating outside of Greece - and even outside the European Union - was poised to take over one of the country's most important companies, which was crucial to the national economy and to some extent to national security.
It thus decided to introduce a special provision according to which: (i) the acquisition of over 20% of the share capital of a formerly state-owed company which is crucial to the public interest requires the prior approval of the Greek state; and (ii) certain decisions of the company which are crucial to its development (eg, on dissolution, conversion, merger, division) can be made only with the prior approval of the Greek state.
This latter provision is a classic feature of a golden share. Although generally drafted, it was obviously meant to stop the Dubai fund from acquiring a bigger stake in OTE. The compatibility of this provision with EU law was immediately raised. Although an extensive discussion of this issue is beyond the scope of this update, it could be argued that the Greek provision is in breach of EU law because it does not set out specific reasons of public interest which could justify the restrictions it imposes. Moreover, the restrictions are arguably disproportionate since:
Unsurprisingly, therefore, the European Commission first asked the Greek government to postpone the implementation of the law until it has ruled on its compatibility with European law and subsequently initiated proceedings to challenge its validity before the European courts.
However, the Greek government nonetheless succeeded in its goal. Following the introduction of the provision in question, the Dubai fund ceased acquiring shares in the company and did not exceed the 20% threshold. It further issued a public statement by which it declared that it had no intention to challenge the compatibility of the Greek provisions with EU law.
The Dubai fund subsequently decided to sell its shares. A potential buyer was found in the form of German telecommunications company Deutsche Telekom. The Greek state is very happy to have such a big telecommunications company as a strategic partner in OTE. Thus, not only does it not intend to block the acquisition, but it has also decided to sell to Deutsche Telekom a further 3% it still owns, which will make the German telecommunications company the majority shareholder in OTE.
Negotiations are underway for conclusion of the deal, which will also include an extensive shareholders’ agreement. Whatever the outcome of these discussions, an important conclusion may be drawn: while sometimes private companies are not prepared to fight for their rights against the state, financial success can occasionally be achieved through alternative routes.
For further information on this topic please contact Prokopis Dimitriadis at Lambadarios Law Offices by telephone (+30 210 322 4047) or by fax (+30 210 322 6368) or by email (PDimitriadis@lambalaw.gr).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
ILO is a premium online legal update service for major companies and law firms worldwide. In-house corporate counsel and other users of legal services, as well as law firm partners, qualify for a free subscription.