The celebrations this month to mark BT’s 25 years as a public company will be low key, but the privatisation that changed the structure of UK business is being studied intensively at UKFI, the government agency with £60bn of bank shares to sell. The tricks conjured up to sell BT will be re-used to sell the public stakes in Lloyds and Royal Bank of Scotland.
In 1984, before the Big Bang internationalised the stock exchange, private share ownership was in decline and foreign investment in UK shares was negligible. But the £3.9bn sale of half of BT was the world’s biggest flotation, and to find sufficient investors meant interesting international institutions and selling equities to a public that had never owned a share. Previous privatisations had been sold to the City at minimal prices – British Aerospace went for £150m – but BT became the first to be aimed at the public. The advertising blitz inviting people to register to buy shares was so successful the issue was subscribed more than threefold and the part-paid shares doubled in price once dealing began.
After that, other privatisations, from British Airways to the state’s BP shares, were sold in the same way – international roadshows and global book-building for institutions, TV advertising and discounts for the public. The rest of BT was sold in 1991 and 1993 for a further £10bn. The “Tell Sid” slogan was coined to sell British Gas. And as industries from water and electricity to railways and airports, plus companies such as Rolls-Royce and Jaguar, were floated, a massive tranche of the public ector passed into private hands.
As nationalised industries, these businesses had made massive losses, and privatisation made them more efficient. Only five years before its flotation, BT had been part of the Post Office; customers had to wait weeks in the 1980s for a phone to be installed and recorded messages regularly told callers “all lines out of London are busy”.
But privatisation merely made state monopolies into private monopolies, and when competition was later introduced it benefited the consumer while damaging the public companies. BT now has a range of rivals taking its market share, and the past decade has been difficult.
In 2001 it was forced to raise £6bn from shareholders in a rights issue bigger than the original flotation to cut its massive debts, sell the Yell directory businesses and demerge its O2 mobile operations. Revenues are falling and the dividend has been axed. BT cut its workforce by a further 15,000 last year and is looking to shed another 15,000 jobs now, halting graduate recruitment to keep down numbers.
Investors who bought shares in 1984 and the subsequent government sales have a loss on their long-term investment unless they kept their O2 shares until it was taken over by Telefonica of Spain.
But if the BT experience has been less than happy, the privatisation lessons cannot be forgotten. UKFI will need to use the same techniques to entice overseas investors and encourage private shareholders if it is to sell its massive bank holdings. It took nine years between the first and last tranche of shares to sell BT and it could take as long to sell the much bigger bank holdings. But the government needs to turn again to the public it tapped 25 years ago.