Editor's letter

Royal Mail: Another botched sell-off

As the chaotic privatisation of Royal Mail showed, the government has learnt nothing, says Merryn Somerset Webb.

In the late 1970s, the word privatisation' didn't really exist. If anyone ever spoke of listing the UK's many nationalised firms (they generally didn't), they used the word denationalisation'. That changed fast.

Privatisation' seen as a more positive description was first brought to public attention in a Financial Times article in July 1979, says John Littlewood in his book The Stock Market: 50 Years of Capitalism at Work. It didn't take long to grab the public imagination.

By November, 5% of BP had been sold into the market. By 1981, pretty much everything was seen as up for grabs: stakes in Ferranti, British Aerospace, Cable & Wireless, and the National Freight Corporation had all been sold.

However, it was in 1982 when the state for the first time attempted a full privatisation. Not just a sale of its holding in a company (it owned only 51% of BP in the first place), but of a whole company. It was Amersham International, created as a subsidiary of the UK Atomic Agency to develop and sell radioactive materials.

With no shares in the market yet, the government had to come up with its own price. And guess what? It got it wrong. The issue was 24 times oversubscribed and began trading at a 30% premium to the listing price. Everyone was livid (except those who got and flipped the shares, of course).

Yet the state followed that up by underpricing Associated British Ports it went to a 23% premium. Then there was BT. Shares were to be paid for in instalments, but the way the deal was structured allowed hundreds of thousands to double their money: the part-paid shares went to a 100% premium on day one. It didn't end there.

The part-paid shares in Rolls-Royce and British Airways both got to a near-70% premium. Even British Gas could have been stagged for a 25% gain on its first day.

Each listing came with a flood of fury from parts of the public. It seemed to them that the under-pricing was less about incompetence, and more about bribing the middle classes to vote for Margaret Thatcher. I suspect it was a mixture of both.

Nonetheless, it still makes the botched Royal Mail (RM) listing look a little same old, same old'. The lessons of the 1980s give the buyers enough to keep them buying, but not so much that the taxpayer is ripped off clearly weren't learned.

New mistakes were made too: the administration mess that prevented small investors from selling on Tuesday and the idiocy of excluding anyone who asked for what the state decreed was too much (£10,000 plus) haven't covered the state in glory.

The listing of RM could have been a triumph for capitalism (as some still think it was). But unless you define capitalism as giving thousands of people the opportunity to stag an underpriced initial public offering at the expense of the average taxpayer, I think things might need a rethink before the government has another go.

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