Madam, - Your Editorial of April 5th refers to the conditions under which the sale of Aer Lingus will proceed and states: "The most significant of these is that the Government will retain a golden share of at least 25 per cent of the company. This will allow it to block significant transactions, such as a takeover, which it deems contrary to wider strategic concerns."
It seems to me you are in danger of confusing two separate issues, as the Government and Minister for Transport Martin Cullen no doubt intend.
The term "golden share" arose in the 1980s when the British government retained golden shares in companies it privatised. It is a nominal share held by government in a previously state-owned company subsequent to the process of privatisation. This share gives the government the right of decisive vote, thus to veto all other shares, at a shareholders' meeting.
This mechanism is designed to give a government veto powers over any major corporate action such as the sale of a major asset or subsidiary or of the company as a whole.
But - and it is a very big but - the European Court of Justice has so restricted the notion of post-privatisation state ownership of a golden share as to make it almost impossible, certainly in the Aer Lingus context. The UK government's golden share in the airport operator BAA was ruled illegal under EU law as long ago as May 2003. The reason is that divorcing investment in a company from the right to control it is a breach of European law provisions for the free movement of capital.
According to the Commission, in a July 2005 paper on special rights in privatised companies, "when a Member State is privatising a company, and when that Member State acts in its capacity as a controlling shareholder, it may apply certain conditions concerning the sale as long as such conditions are based on specific economic policy objective clearly defined beforehand; are applied without discrimination; are limited to the time necessary to achieve the specific objectives; and leave no margin for interpretation by the authorities. However, once a company is privatised, the authorities must desist from further intervening."
In other words, if the State wants to retain strategic control over a commercial enterprise, it must do so by way of strategic investment, at full value, in that enterprise and not by trying to assign greater rights to a minority stake.
When Martin Cullen refers to his proposals for a golden share in Aer Lingus, he is talking about a very different mechanism. What he means is a minority shareholding, at least 20 per cent, that under ordinary domestic company law would prevent a majority shareholder from issuing a binding offer and insisting on a 100 per cent takeover.
But of course, firstly, an initial stake of 20 per cent or even 30 per cent could not prevent subsequent rights issues and the dilution of that stake.
And secondly, contrary to the impression conveyed in your leading article, such a minority holding could not block all or even any significant transactions deemed contrary to wider strategic concerns except the single and ultimately irrelevant possibility of the majority shareholder becoming a 100 per cent owner. Why would the State want a permanent minority stake in a private company, with sufficient voting power to block the majority on that single issue alone?
This Government appears to have rejected a sane and rational investment opportunity. If Aer Lingus is a good investment for the private sector, then it is also a good investment for the public sector. There is no barrier to investment under public ownership other than the political philosophy that drives the current Government.
- Yours, etc,
RÓISÍN SHORTALL TD, Labour Party Spokeswoman on Transport, Dáil Éireann, Dublin 2.