[NY Times] Europe’s highest court ruled Thursday that the Portuguese government had used an illegal method to block an attempt by Telefónica of Spain to buy full control of a Brazilian wireless venture it holds with Portugal Telecom.
The ruling, by the European Court of Justice, came a week after the government surprised investors by using its so-called golden share in Portugal Telecom to stymie an offer of 7.15 billion euros ($9 billion) for its half of Vivo, the leading operator in Brazil’s fast-growing wireless market.
The golden share vote — a share that grants special voting and veto rights — was justified by Prime Minister José Sócrates of Portugal on grounds of national interest, arguing that remaining in booming Brazil was essential to Portugal Telecom’s growth. Still, the European court’s ruling had been widely expected, after a preliminary decision by its advocate general that went against the Portuguese government.
The Portuguese government said Thursday it would respect the court’s decision.
“The state will search for solutions that allow full respect for E.U. law but that also safeguard the national interest,” said Pedro Silva Pereira, minister to the president, after a cabinet meeting.
At a meeting of Portugal Telecom shareholders last week, investors voted almost three-quarters of their shares in favor of the Vivo takeover offer.
While Telefónica had warned that it was likely to appeal the golden share veto after the European ruling, most analysts expect the company to try to settle the dispute rather than engage in further legal wrangling.
Both Telefónica and Portugal Telecom on Thursday indicated that they would be willing to resume discussions.
It was not immediately clear whether the European ruling could be retroactive, since the court was asked to consider whether the government could keep its golden share rights in Portugal Telecom rather than rule on the specific case of Vivo.
In its decision, the court said that Portugal had “failed to fulfill its obligations pursuant to the free movement of capital.”
Before that ruling, both operators had issued statements that were seen as an attempt to defuse the dispute and ensure that their wrangling would not undermine Vivo.
Portugal Telecom said that it had wanted to “analyze options that optimize the advantages for all parties.” The Spanish operator, meanwhile, said that it was “willing to continue looking for possible solutions to take this operation to a good ending, as long as there is equal availability from Portugal Telecom to this effect, in a way in which both parties feel comfortable.”
Lisbon’s intervention in the dispute was widely condemned last week by European Union officials as a return to unwanted protectionism. Officials in Brussels have been on a longstanding crusade to stop Portugal and other governments from using golden shares to block foreign takeovers on the grounds that capital should be able to flow freely across the 27-nation bloc.
Telefónica, meanwhile, had twice improved its offer for Vivo, from an initial 5.75 billion euros, to persuade Portugal Telecom’s management and shareholders, who were reluctant to give up a piece of the Brazilian market, particularly when the company faced a stagnating business at home.
Top European Court Rules Against Portugal in Dispute Involving Telefónica