'Make Someone Happy' Said BT. but Its Shares Hardly Helped; 25 YEARS AFTER BT FLOATED, THE UK'S DEBTS ARE FORCING THE GOVERNMENT TO CONSIDER ASSET SALES. ARE THERE ANY LESSONS FOR TODAY'S INVESTORS FROM THATCHER'S SELL-OFFS?

The Mail on Sunday (London, England), November 8, 2009 | Go to article overview

'Make Someone Happy' Said BT. but Its Shares Hardly Helped; 25 YEARS AFTER BT FLOATED, THE UK'S DEBTS ARE FORCING THE GOVERNMENT TO CONSIDER ASSET SALES. ARE THERE ANY LESSONS FOR TODAY'S INVESTORS FROM THATCHER'S SELL-OFFS?


Byline: Midas By JOANNE HART INVESTMENTS EDITOR midas@financialmail.co.uk

IN 1984, Jayne Torvill and Christopher Dean won the Olympic gold medal for ice dancing, the miners began a year-long strike and the single Do They Know It's Christmas? was released by Band Aid. But 1984 was momentous for another reason. As the year drew to a close, Prime Minister Margaret Thatcher launched one of the most audacious plans in recent history - the mass privatisation of public assets.

BT was the first well-known public sector organisation to be actively marketed to the man in the street. Now we are used to privatisations, but back then, the idea was untested and largely unwanted. People found the prospect of selling a national asset almost unnatural and both the Government and its advisers feared the general public would simply turn their backs on the offer, leaving all the shares in the hands of large institutional investors.

But their fears proved unfounded. BT shares were offered at 130p, more than two million people bought them and by the end of the first day they were trading at 170p.

Two years later, the best-known privatisation campaign of all time was launched for the sale of British Gas with the line 'If you see Sid, tell him'. It was the first time television had been used to persuade the public to buy shares and the response was huge.

The marketing campaign cost [pounds sterling]30 million - an extraordinary amount at the time - but the bankers involved calculated that they could make that back if they managed to price the shares a penny higher than their initial plans.

In the event, the shares were priced at 135p - 10p higher than the original estimate - so the advertising paid off in spades, the company was valued at [pounds sterling]9 billion and the stock still traded at a premium by the end of the first day.

Through the Eighties and into the early Nineties, assets ranging from airports to electricity pylons were sold off. Share ownership swelled and Thatcher's privatisation programme became the envy of Europe.

The impetus for privatisation was threefold. First, Thatcher was convinced that big monopolies such as British Telecom, British Gas and the electricity companies would become much more competitive, enterprising and efficient if they were privatised.

Second, she knew there was not enough money in the public coffers to invest as much as was needed in the various State entities. And third, she thought the extra money - amounting to tens of billions of pounds - would come in handy.

A quarter of a century later, the country's finances are in a complete mess and a fresh round of privatisations seems inevitable, whichever party wins the next General Election. So it is worth looking back to see which privatisations did well, which did badly and whether there are any lessons to be learnt ahead of the next privatisation spree.

Midas has selected nine stocks as a cross-section of the Thatcher privatisations.

Overall they have appreciated in value more than the FTSE 100 and they have paid more generous dividends. But some have performed much better than others. The star of the show is British Gas. Privatised at 135p, the company was initially all things to all men - it was an explorer and production business (looking for gas and bringing it to the surface); it owned the pipes that transported the gas and it supplied gas to homes and businesses across the UK. But it changed radically in the Nineties and shareholders benefited handsomely.

In 1997, the supply side and the exploration and production side were split in two, so investors received shares in Centrica and BG respectively. Three years later, the infrastructure and pipeline business was split off, which meant another bundle of new shares in a company called Lattice.

Lattice then merged with National Grid, so even if Sid did nothing at all with his original British Gas investment, he would now own shares in BG, Centrica and National Grid and a [pounds sterling]100 original investment would be worth more than [pounds sterling]1,000. …

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'Make Someone Happy' Said BT. but Its Shares Hardly Helped; 25 YEARS AFTER BT FLOATED, THE UK'S DEBTS ARE FORCING THE GOVERNMENT TO CONSIDER ASSET SALES. ARE THERE ANY LESSONS FOR TODAY'S INVESTORS FROM THATCHER'S SELL-OFFS?
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