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Last Updated: Tuesday, 13 May, 2003, 11:38 GMT 12:38 UK
BAA 'golden share' ruled illegal
Planes at Heathrow Airport
Heathrow could face a hostile bid

The UK government's "golden share" in airport operator BAA - owner of Heathrow and Gatwick - has been ruled illegal under EU law.

Golden shares held by the Spanish government in a range of businesses including oil and electricity firms have also been condemned.

The golden share in BAA gives ministers the final say in any major decision such as selling an airport.

It also means no other investor is allowed to take more than a 15% stake in the company.

Both the Spanish and UK rules entail restrictions on the movement of capital between member states
European Court of Justice

But European Union Treaty rules allow governments to keep a grip on private firms in this way only if there are strong security reasons.

Hostile bid

In a ruling on Tuesday, the European Court of Justice (ECJ) said the UK Government's golden share restricted the free movement of capital within the single European market.

The court also ruled that golden shares held by the Spanish government in Telefonica, Repsol, Endesa, Argentaria and Tabacalera were in breach of EU law.

"Both the Spanish and UK rules entail restrictions on the movement of capital between member states," the ECJ said in a statement.

The ruling potentially leaves BAA vulnerable to a hostile takeover bid.

Other UK companies in which the government retains a golden share include BAE Systems, British Energy and Rolls-Royce.


The ruling boosts the European Commission's crusade against cross-border investment barriers.

There is no plausible economic justification for this interference with the market
Luis Garicano, university of Chicago

It could also have implications for laws shielding German carmaker Volkswagen from hostile bids.

"Clearly VW would have less room to argue there are doubts over the law," said one EU lawyer.

The Commission has pending cases against Italy, Spain, Germany, Denmark and the Netherlands.

Political considerations

BAA said it would not oppose the government giving up its golden share.

But analysts said the possibility of a takeover was remote.

Commerzbank transport analyst Dominic Edridge said political considerations were always paramount in the airport industry.

"It wouldn't be possible for anyone to come in without at least an agreement or relationship with the government themselves," he added.

'No justification'

But analysts said the ruling meant public golden shares are likely to become increasingly scarce in the future.

Luis Garicano, economics professor at the University of Chicago, said: "The golden shares must go.

"The notion of a single market without a single market for corporate control is completely absurd.

"There is no plausible economic justification for this interference with the market."


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