Another piece of family silver sold for a song

City & Business
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The Independent Online
IF YOU happen to be in the vicinity of Tilbury in Essex this weekend, don't be surprised to see a lot of smiling faces. Midas visited the town last week in the shape of a pounds 132m bid for the docks - a spectacular price for a business that fetched only pounds 32m for the Exchequer when it was privatised three years ago.

The port was then bought by its managers and employees, backed by venture capitalists. Last week, the three key directors each walked away with more than pounds 5m. The 1,500 employees and former employees have each got an average of pounds 23,500. Tilbury is partying.

This is all wonderful for the dockers. It has to be one of the most widely spread staff buyouts, with the humblest stevedore benefiting. But it seems that yet again, with the benefit of hindsight, a state-owned asset has been sold for a song and taxpayers have been short-changed.

Fifteen years after the Government started selling the family silver - to borrow Harold Macmillan's phrase - it still doesn't seem to have the first clue about the value of the individual salvers, tureens and goblets it sends off to the auctioneers. And despite using the equivalent of Bond Street auction houses - blue-chip merchant banks and accounting firms - solid silver still gets mistaken for plate.

Last month, we devoted our cover story to the shabby episode of electricity privatisation. The regional electricity com- panies are now worth pounds 17bn - three times what the Government received for them in 1990. The same pattern has been repeated in privatisation after privatisation.

The Department of Transport denies Tilbury was sold on the cheap: the buyout team was the highest bidder; ports at the time were an investor's nightmare; and the price was within the valuation range of its advisers.

We are asked to believe that the stratospheric increase in the value of the port is all down to the fantastic job done by the directors over the last three years in winning new customers, boosting efficiency and exploiting the port's landbank. If this is really the case, what a pity that these self-same people didn't bother to use their talents before - when they were public servants.

Sometimes the increase in value of a company post-privatisation can be attributed to the transforming efforts of a liberated and motivated management and workforce. But a fourfold increase in three years? Was this all down to an energised workforce? Or at the time of the sell-off did the Department of Transport, aided and abetted by its advisers Price Waterhouse, underestimate the true potential of the port - and therefore its value?

Managers of state-run businesses on the auction block know only too well the advantage of putting the worst possible gloss on their past performance and future prospects. The businesses get sold cheaply. Managers win either directly if they are members of buyout teams, or indirectly through the power of share options.

True, the Government is starting to get wiser. It now usually retains a minority stake in privatised businesses which it can later sell for a higher price. The two-stage privatisation of National Power and PowerGen yielded considerably more to Treasury coffers than a one-off sale would have achieved.

But much more could be done. With trade sales, it is time to introduce a clawback element: buyers should be made to pay additional instalments on the purchase price if the privatised business beats agreed targets or if it is sold on for more than an agreed sum.

Norweb dilemma

ANOTHER week, another electricity bid. This time the target is Norweb, the fifth regional electricity company to be on the receiving end of an offer in the last year. North West Water's pitch seems to have provoked even more hostility than the others. It has managed to unite the Labour frontbench with the Conservative backbencher John Redwood, an unlikely alliance. Certainly there is something unsettling about a cast-iron monopolist in one industry trying to scoop up a cast-iron monopolist in another, especially when its customers are one and the same people.

But it leaves Ian Lang, President of the Board of Trade, with a bit of a headache. Having cleared the other three extant electricity bids 10 days ago, he has little precedent for blocking this one with a monopolies inquiry.

Yet bids for RECs are not going to go away. Their part of the electricity industry is a natural monopoly: the RECs will inevitably attempt to combine. More bids will follow and concentration in the industry will increase. At some stage, Mr Lang (or his successor) will have to draw a line in the sand if he is serious about introducing competition for domestic customers.

But for now, Norweb shareholders can sit back and enjoy the ride. The company is busy trying to squeeze a counter-offer from at least two other potential bidders. Even if they drop out, there's still a chance that North West will be persuaded to lift its offer: the financial arrangements it has put in place for the bid reveal there's a lot more in the kitty.

Bouncer in the City

SMALL private shareholders have always been at a massive disadvantage compared with institutional investors. They have neither the same investment expertise, nor the back-up, nor the advantage of cosy chats with senior managers in the companies they invest in. They don't even know the exact share price they buy and sell at until after the deal is done.

For financial information the small investor has to rely on the annual report - which is too often an unhelpful mixture of boardroom propaganda, creative accounting and inpenetrable small print.

Last week, the balance was to have been evened up ever so slightly. As David Bowen explains on page 5, a new service quoting real-time share prices was to have been launched on the Internet on Friday. Anyone with a personal computer and a modem would have been able to use it.

It was not to be. The Stock Exchange first revoked a contract to supply the service provider with the necessary information. It then killed the service stone dead by denying all co-operation, claiming the provider had breached a confidentiality agreement.

The Stock Exchange is understandably cautious about new technology. Who can forget the shambles over its Taurus share-settlement system? But its behaviour last week reinforces its image as the City club's heavy-handed bouncer.