The European Court of Justice in Luxembourg has today issued its ruling that the Portuguese government’s so-called ‘golden share’ in national PTO Portugal Telecom (PT) constitutes a violation of European Union (EU) rules governing the free movement of capital. In its ruling, the Court of Justice said the ‘golden shares grant the Portuguese state influence over decision making in the company which is liable to discourage investments.’ It dismissed Lisbon’s arguments seeking to retain its special rights for PT saying instead that ‘in those circumstances, the holding of golden shares confers on Portugal an influence on the management of PT which is not justified by the size of its shareholding’.
The government of Portugal recently invoked its right to veto – tied to its ownership of 500 Portugal Telecom ‘class A’ shares – on 30 June 2010, when it moved to block Telefonica of Spain’s improved EUR7.15 billion (USD8.73 billion) bid for PT’s 50% stake in their jointly owned Brazilian mobile venture Vivo Participacoes. At the time, Portugal’s prime minister Jose Socrates justified the veto by saying the country’s strategic interests would be jeopardised if PT pulled out of Vivo and that the state had a duty to protect the size and market value of what is its largest company by market value. ‘The offer was not in the interest of PT,’ Socrates said. ‘The government is protecting the interests of the country.’ It is understood that around 74% of PT shareholders voted in favour of Telefonica’s improved bid for its 50% stake in the Brazilian venture.