History's Biggest Stock Offering

By John S. DeMott

Investors queue for shares as British Telecom goes private

Britain may be a nation of shopkeepers and gardeners, but it is not one of shareholders. Only one in 25 people own stock, vs. one in five in the U.S. Last week that began changing, as Britons rushed to take part in the biggest stock sale since 1066 and all that. The Thatcher government is selling 50.2% of British Telecom, the nationalized telecommunications company, to institutional investors and the general public. The sale will raise $4.7 billion from more than 3 billion shares.

Encouraged by a $10.3 million advertising campaign, Britons lined up at banks, post offices and department stores to pick up an estimated 2 million applications to buy the 1.16 billion Telecom shares reserved for individual investors. Although the scheduled per share price was $1.56, demand was so great that shares may reach $1.80 or more after trading begins this week in London and other major stock exchanges. One attraction: bonuses of one free share for every ten bought and held for three years. People deluged stockbrokers with calls to buy at least the minimum of 200 shares, even in recession-dispirited north England. Traders in London's financial district expected that investors might want to buy more than twice the number of shares available.

An additional 1.42 billion shares will go mainly to British institutional investors, with another $280.8 million worth going to the U.S., where traditional wariness of foreign stocks will, in this case, be cast aside. Says Donna Jaegers, a telecommunications analyst at Wall Street's Paine Webber: "People feel at home with the British."

The sale of the telecommunications giant's stock is part of the Thatcher government's program of turning state-owned nterprises over to private investors. The Conservatives hope that this will help make the companies more efficient and profitable. They also feel that thousands, or even millions, of happy shareholders would make it all the more difficult for a future Labor government to renationalize companies that have gone private.

The opposition has groused that privatization is really privatization of assets rightly owned by the British people. They assert that the companies are being grossly undervalued. British Telecom, claims Alan Tuffin, general secretary of the Union of Communication Workers, is worth at least $12 billion, and selling it for $4.7 billion amounts to no less than "plundering the country's assets for private gain."

While the idea of privatization sounds appealing enough to Conservatives, it has been difficult to achieve in practice. So far, only Jaguar, Britoil and a handful of other nationalized firms have been turned over to private hands. Within the Thatcher government, squabbles have broken out over what companies to take private and when to do it.

In the sale of British Telecom, however, everything seems to be going right.

Even the climate for investing appears to be ideal. The once anemic British stock market has bounced back smartly during the past six weeks, with one leading index hitting a record. Interest rates have dropped off.

Whether a privately owned British Telecom will be much of an improvement over the state-owned company is debatable. British Telecom was one of the first in Europe to divorce its telephone system from antiquated postal and telegraph services. But, say critics, the company is still run inefficiently, with too many employees (240,000) and too much obsolete equipment. Last week, though, naysayers were being ignored by would-be shareholders, some of whom were mortgaging their houses to buy the stock.

--By John S. DeMott. Reported by Mary Cronin/London

With reporting by Mary Cronin