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EU
Court Boosts Foreign Mergers
BBC
June 4, 2002
The European Court of Justice (ECJ) has
ruled that restrictions by some European governments on foreign ownership of
privatised companies are illegal.
The decision makes it more difficult for governments to block foreign
investment in former state-owned firms on national interest grounds, paving the
way for more cross-border takeovers and mergers.
The ruling stems from a 1998 legal challenge by the European
Commission against the French government's veto power over the sale of major
stakes in oil giant ElfAquitaine, now TotalFinaElf.
The Commission also took legal action against the Belgian government's
controlling stake - or 'golden share' - in its canal and gas distribution
companies, and Portuguese restrictions on foreign ownership of privatised state
firms.
All three governments said the restrictions were designed to
ensure that essential industries remained under national control in case of a
crisis.
The Commission, however, argued that limits on foreign ownership were
incompatible with EU laws guaranteeing the free movement of capital within the
trade bloc.
In the event, the ECJ on Tuesday backed Belgium's golden share in its the gas
and canals industry.
And it agreed that controls on defence - or other sensitive areas in
"exceptional circumstances" - were permissible.
But it said that while France had a "legitimate general
interest" in controlling ownership of TotalFinaElf, its restrictions were
disproportionate because they restrict the free flow of capital.
As for Portugal, the ECJ outlawed what it termed "discriminatory"
restrictions on foreign ownership of privatised state firms altogether.
French finance minister Francis Mer was unperturbed by the decision, saying that
TotalFinaElf had "the means to take care of its own future".
The ruling could, however, trigger a fresh round of legal
challenges against government-endorsed restrictions on foreign share ownership.
The BBC's correspondent in Brussels, Patrick Bartlett, says the court's
judgement could impact a string of pending cases, among them one involving UK
airports operator BAA.
Other companies protected by similiar restrictions on ownership include German
car giant Volkswagen, whose home state of Lower Saxony bans foreign owners
holding more than 20% of the company.
The decision has also boosted a planned overhaul of EU
takeover law aimed at making it easier for firms to launch cross-border mergers
and acquisitions. The reform is an important element of EU plans to create a
single European market for investment services by 2005.
The European Commission has said it aims to unveil the reform
proposals later this year.
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