British Steel Receives a $4.5-Billion Price Tag
Anxious to revitalize its 9-year-old privatization program in the face of a stock market still jittery after last year’s crash, Britain’s Conservative government on Wednesday put what critics termed a bargain-basement price of $4.5 billion on the assets of British Steel Corp.
Success of the sale is considered especially important because it is the first of a state-owned company since the ill-fated October, 1987, attempt to sell nearly one-third of British Petroleum. The government was forced to buy back BP shares when the crash drove the market well below the price that it had originally set for the stock, and underwriters were stuck with unmarketable securities.
Another concern is the planned privatization of water and electrical utilities, confirmed on Tuesday when the government outlined its legislative agenda for the current session of parliament.
With a combined value estimated at about $45 billion, those controversial utility sales would be by far the largest attempted under Prime Minister Margaret Thatcher’s ambitious privatization program for state-owned industries. And while a Downing Street source denied any connection with the British Steel offering, other analysts contend that the government is using it to help establish the best possible climate for the more troublesome water and electricity flotations.
Faith in Thatcher Tested
Privatization is a cornerstone of Thatcher’s conservative revolution here. She has sold off about $70 billion worth of state-owned industry, housing and utilities since taking office in 1979. At that time, nationalized industry accounted for more than one-tenth of the nation’s economic output and constituted a drain of approximately $6 billion annually on the Treasury.
While the program has generally been seen as a major success, the British Petroleum debacle last year shook public confidence. Faith in the Thatcher economic revolution has been further tested by an unexpected surge in the inflation rate to 6.4% currently.
By setting a price equivalent to $2.25 per share for the 2-billion share British Steel flotation, the government virtually guaranteed instant paper profits for those investors able to buy the stock, according to financial sources here.
At the company’s current dividend level, the shares will yield an 8% return. And since investors only have to come up with half the purchase price by Dec. 2--the balance is due next Sept. 26--they can actually expect a nearly 16% return on their money in the first year.
‘Insider Deal’
British Steel has been transformed during the last nine years from what the Guardian newspaper described as “a very ugly industrial frog” into “a shining and profitable prince” now considered the healthiest steel company in Europe.
From a loss of more than $3 billion in 1979-80, it has turned around to the point that its pretax profits for the 12 months ending next April 1 are forecast at the equivalent of $1 billion, up 31% from the year before.
Labor Party trade spokesman Bryan Gould charged Wednesday that the government was offering “the insider deal of the century,” and in the process effectively robbing the public of some $360 million. The figure is based on the $2.43 per share price that many analysts believed the issue could attract.
Trade and Industry Secretary Lord Young denied the government was “selling the family steel on the cheap.”
The planned privatizations of electricity and, particularly, water are expected to face far more serious opposition, as suggested by an editorial Wednesday in the Times of London.
“It has been a notable fact of this government’s history that the public has been on the government’s side over privatization,” the newspaper wrote. “It is clearly accepted that there is no reason for the state to manage productive or service industries, particularly where a prospect of competition is lacking in the public sector.
“Water is, however, different. It is a unique and basic natural resource; there can be no competition for the water companies within their areas.”
