EU Ruling Nixes "Golden Shares"

The Luxembourg-based court ruled Tuesday that the French government violated EU law by using "golden shares" in order to protect the oil giant Elf Aquitane from takeover by a foreign company.

The judges said the use of golden shares by governments to protect national businesses restricted the flow of capital inside Europe and fettered competition.

The decision also overturned a Portuguese law that gave the government veto power over any acquisition of stakes larger than 10 percent in former state-run enterprises.

In the French case, the justices said the government's stake in Elf Aquitane "clearly went beyond what is necessary" in its effort to protect the country's national defense and energy supply.

The ruling resulted from a suit filed by the European Commission against the governments of France, Portugal and Belgium.

The court said that in the Portuguese case, the government had restricted free movement of capital through its veto power of foreign takeovers of insurance and transportation firms and banks.

However, the court did permit Belgium to hold golden shares in gas and canal firms, which it said were needed to assure gas supplies.

Towards a European Takeover Law

The EU is seeking to create a Europe-wide takeover law that would make acquistions across borders easier. However, the French and German governments have resisted the move and fought to keep their shares in companies that are symbols of the countries' economic might and global cachet.

The so-called "Volkswagen Law" in Germany limits individual ownership in the Beetle-producing conglomerate to 20 percent, thus rendering it immune to any hostile takeover. The state of Lower Saxony also owns an 18.6-percent stake in the company.

The European Commission is considering a legal challenge to the law.

Klaus-Heiner Lehne, the Christian Democrat and German member of the European Parliament who is leading up the EU's efforts to create a unified takeover law, said the decision would make it impossible to keep the VW Law on the books.

Volkswagen, however, says the ruling will not impact its ownership structure, since the VW Law does not include the use of golden share protections.

German takeovers law under scrutiny

The ruling could also spell trouble for a takeovers law passed by the German government in November. The law makes it easier for a company's management to defend itself against a hostile takeover by allowing boards to seek blanket authority for an 18-month period from shareholders to adopt poison pill measures.

Legislators in parliament adopted the law following an international tug-of-war over German mobile phone company Mannesmann, which was eventually taken over by the British company Vodafone last year.

Politicians in the ruling Social Democrats say the country could drop that law in the future if the Commission paves the way for an EU-wide takeover policy. But others in the government defend the acquisitions law.

A spokesman for Finance Minister Hans Eichel told the newspaper "Handelsblatt" there were no golden shares in Germany, and that there would be no need to amend the Volkswagen law.