EU rules against Portugal’s use of golden share in Brazil deal

Spanish incumbent operator Telefónica is still chasing its Brazilian dream after the European Court of Justice ruled that the Portuguese Government’s use of a so called ‘golden share’ to block Telefónica’s acquisition of Vivo was unlawful.

On Thursday morning, the European Court not only ruled that the Portuguese state’s holding of the golden shares “constitutes a restriction on the free movement of capital,” but also said that because the golden share allows an influence on the management of PT which is not justified by the size of its shareholding in that company, it “is liable to discourage operators from other Member States from making direct investments in PT since they could not be involved in the management and control of that company in proportion to the value of their shareholdings”.

Telefónica has not yet responded to the court’s ruling, but on Wednesday said that it “is willing to continue looking for possible solutions to take this operation to a good ending.” The Spanish firm has already extended the period granted to Portugal Telecom to communicate its acceptance of the offer until July 16.

Earlier this month at a general shareholder meeting at Portugal Telecom, a majority (73.9 per cent) of votes were submitted in favour of Telefónica’s acquisition of Portugal Telecom’s stake in Brasilcel, which in turn controls Vivo. But the Portuguese Government stepped in with its “golden share” and blocked the transaction.

Previously, Telefónica sold eight per cent of its ten per cent stake in Portugal Telecom amid fears it would not be allowed to vote as a PT shareholder on the acceptance of its offer to buy PT out of Brasilcel.

Telefónica upped its offer for PT’s 50 per cent stake of Brasilcel from €5.7bn to €6.5bn in early June.

The current stalemate reflects the strategic importance attached to Brazil in general, and Vivo in particular, by both European incumbents. The market had 185.45 million cellular subscribers at the end of Q1 this year, according to data from Informa’s World Cellular Information Service with Vivo accounting for 53.94 million.