What Is a Golden Share?
Let me explain what a golden share is directly: it's a type of share that grants its shareholder veto power over any changes to the company's charter. You should know it comes with special voting rights, allowing the holder to prevent another shareholder from acquiring more than a certain ratio of ordinary shares.
Ordinary shares, in contrast, are equal among themselves in terms of profits and voting rights. These golden shares also enable blocking a takeover or acquisition by another company.
Key Takeaways
- A golden share provides veto power over changes to the company's charter.
- One golden share controls at least 51% of voting rights and can be issued by private companies or government enterprises.
- Golden shares have been predominantly used in the United Kingdom and Brazil to maintain control over state-run entities.
Understanding Golden Shares
You can find golden shares issued by public companies or governments. One such share controls at least 51% of the voting rights. For a company to issue them, it must pass special resolutions and amend its memorandum and articles of association, which govern its relationships with outside businesses.
These shares gained popularity in the 1980s when the British government privatized companies but wanted to keep control. Other European governments and even the Soviet Union adopted similar approaches.
While the United Kingdom has used golden shares extensively, countries like Brazil employ them to retain control over state-run entities. The European Union, however, has largely banned their use by companies and governments, allowing only protections for vital services and deeming golden shares unjustified and disproportionate to company and economic interests.
Pros and Cons of Golden Shares
The British government saw strong reasons for using golden shares in newly privatized companies, as they protect against hostile takeovers, particularly from international bidders. This applies to public companies too, helping them maintain control amid competition.
Golden shares are crucial for companies vital to a nation's economy, public policy, or national security.
On the downside, critics point out that golden shares grant the holder excessive control, often overriding the wishes of other shareholders.
Examples of Golden Shares
Consider the Brazilian company Embraer S.A. (ERJ), which offers aeronautical services and produces commercial, military, and agricultural aircraft. It started as a private and state-run entity, going public in 2000, but the Brazilian government holds a golden share with veto power.
In 2019, the government approved selling the commercial aircraft division to Boeing Corporation (BA), but by April 2020, the $4.2 billion deal collapsed, with Boeing withdrawing. President Jair Bolsonaro referenced the golden share, noting it might lead to negotiations with another company.
Another case is the British Airports Authority (BAA), owner of Heathrow and Gatwick airports. Privatized in 1987, the British government kept a golden share, but in 2003, a European Union court ruled it violated laws.
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