[A-List] EU integration struggles: Commission imposed neoliberalism

["Michael Keaney" <michael.keaney@xxxxxx>]

State's golden share in BAA is illegal

Takeover shield scrapped

Andrew Osborn in Brussels
Wednesday May 14, 2003
The Guardian

The government was stripped of its power to protect BAA, the airports
operator, from a hostile foreign takeover yesterday and ordered to scrap the
state's "illegal" golden share in the company.

The ruling, from the European court of justice in Luxembourg, could be the
beginning of the end for a string of similar golden shares in former
nationalised companies such as National Grid.

It also leaves BAA vulnerable to a hostile foreign takeover, a move which
could throw the government's plans for airport expansion in the south-east
into disarray. Analysts suggested that potential bidders could include Hong
Kong conglomerate Hutchison Whampoa or private equity groups such as WestLB.

The shares allow the government to veto takeovers deemed not to be in the
national interest and are a hangover from the heyday of privatisation in the
1980s.

But Europe's highest court yesterday signalled that such shares would be
tolerated only in exceptional circumstances. Its ruling is final and cannot
be appealed against.

In the case of BAA, it said the share flew in the face of EU rules on the
free movement of capital, discouraged cross-border investment and had to be
scrapped. The government has three months to give up its golden share.

Heralding a Europe-wide crackdown on the issue, the court also ordered the
Spanish government to scrap similar shares in phone company Telefonica, oil
company Repsol and power firm Endesa.

The European commission, which brought all four cases, said it was
delighted. It is gearing up for more legal challenges - notably against a
German law which it believes makes Volkswagen bid-proof.

"Hopefully the German authorities will see the writing on the wall and take
heed," a spokesman said.

"[We] considered that the way in which BAA was privatised gave rise to
unjustifiable investment restrictions and the court agreed with us."

The government, which has fought hard to keep the BAA golden share, said it
accepted the judgment. "We will be reviewing the situation in regard to BAA
and other golden shares to ensure that they comply with EU law," a spokesman
said.

Government sources argued separately that it might be possible to amend the
golden shares instead of scrapping them.

BAA, which was privatised in 1987 and runs seven UK airports including
Heathrow and Gatwick, said it was unfazed.

"It's not a big issue for the company," said Mike Toms, regulatory affairs
director. "The general principle I think is that a liquid market in our
shares is a good thing and we wouldn't oppose the government surrendering
its golden share."

The share gave the government a right of veto over takeovers and caps the
maximum stock that any one shareholder can hold at 15%. The government has
made use of it at least once.

Under the EU treaty, governments can restrict capital movements only on
grounds of "public security, public order, public health and essential
interests of security connected to defence and the exercise of public
authority".