NATIONAL AUDIT OFFICE
REPORTBY THE COMPTROLLERAND AUDITOR GENERAL
The Sale of the Twelve Regional ElectricityCompanies
ORDEREDBY THEHOUSEOFCOMMONS TO BE PRINTED 6 MAY1992
LONDON:HMSO 10 f7.10 NET
\ THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
This report has been prepared under Section 6 of the National Audit Act, 1963 for presentation to the House of Commons in accordance with Section 9 of the Act.
John Bourn National Audit Office Comptroller and Auditor General 31 March 1992
The Comptroller and Auditor General is the head of the National Audit Office employing some 900 staff. He, and the NAO, are totally independent of Government. He certifies the accounts of all Government departments and a wide rangeof otherpublic sector bodies; and he hasstatutory authority to report to Parliament on the economy, efficiency and effectiveness with which departments and other bodies use their resources.
i THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Contents
Pages Summary and conclusions 1
Part 1: The companies and the sale 7
Part 2: Achievement of objectives 9
Part 3: Control of costs 23
Glossary of terms 27
Appendices
1. Electricity industry restructuring 28
2. The twelve companies 30
3. List of the principal advisers and contractors appointed by the Department 31 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Summary and conclusions
1 In December 1990 the Secretary of State for Energy sold the twelve regional electricity companies in England and Wales. The Department of Energy (the Department) estimated that gross proceeds will amount to some E7.9 billion, payable in two forms: nearly E5.l billion, in instalments, from the sale of the shares and some E2.8 billion from staged debt repayments. Since the sale the Department have been merged with the Department of Trade and Industry who are now responsible for the matters dealt with in this report.
2 This was one of the largest sales since 1979. It was also one of the most complex, involving the simultaneous disposal of all the Government’s shareholdings in the twelve regional electricity companies, who distribute and sell electricity to customers in England and Wales. The sale introduced an entirely new sector to the London Stock Exchange. It followed a radical restructuring of the electricity industry’s organisation and its commercial and regulatory arrangements. It was the first of an ambitious series of three sales planned in the British electricity sector, to be followed by the sale of National Power and PowerGen, who generate electricity in England and Wales, and the Scottish companies ScottishPower and Hydro-Electric.
3 The twelve electricity companies were floated on the London Stock Exchange by means of a fixed price offer. Shares totalling some 2.1 billion were offered for sale at Q.40 each, payable in three instalments.
4 The Government’s overriding objective was to complete the sale of the electricity industry during the lifetime of the Parliament. Within that overriding objective, the Department sought: to maximise net proceeds; to widen and deepen share ownership among individuals; to achieve the overall recognition that the sale of the regional companies had been a success; and to achieve a modest premium over the issue price following the start of share dealings.
6 This report sets out the results of a National Audit Office examination of how far the Department achieved their objectives for the sale and how they controlled its costs. During the course of their work, the National Audit Office examined Departmental papers, held discussions with Departmental officials and advisers, and consulted the Chairmen and senior executives of three of the companies. The National Audit Office were assisted in their work by Hambros Bank Limited and SRU Limited, strategic market consultants.
Achievement of 6 The National Audit Office’s main findings and conclusion are: objectives On the overriding objective of completing the sale to timetable (a) The Department completed the sale of the regional electricity companies by their December 1990 target, paving the way for the generating companies to be sold in March 1991 and the Scottish companies by June 1991 (paragraphs 2.2 to 2.6).
1 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
On maximising net proceeds Method of sole (b) In floating the companies, the Department took appropriate steps to identify and evaluate a variety of options that might help maximise net proceeds. Introducing major innovations into the chosen method of sale would not have been without risk to achieving this objective, given the novelty of the companies and the considerable uncertainty of the market at the time of the sale (paragraphs 2.9 to 2.16). (c) The National Audit Office recognise these uncertainties but, with the benefit of hindsight, note that if a back-end tender- which the Department succeeded in implementing for the first time in the subsequent sale of the generating companies-could have been successfully introduced in this sale, it would have enabled the Department to share in the increase in the value of the companies which, in the avant, took place during the offer period. In the circumstances at the time of the sale, however, the Department accepted the strong recommendation of their advisers that introducing such measures would have entailed risks to the success of the sale, and to proceeds, outweighing the potential gain.
Valuation of the assets (d) The approach adopted by the Department to the valuation of the companies’ assets was reasonable in the circumstances of this sale (paragraphs 2.20 to 2.23).
Clawback [e) The Department introduced provision for clawback on gains arising from the disposal of land and buildings between 31 March 1990 and 31 March 2000 (paragraphs 2.24 and 2.25). (f) The Department also considered but did not introduce provision for clawback on profits. The view of the Department and their advisers was, and remains, that the existence of such a provision would have altered the basis on which the negotiations on dividends took place. Their view is that, if profit clawback had been introduced, they would have had a much reduced chance of achieving the levels of dividend that they soughtand obtained, and an increasedchance of havingto sell the companies at a less advantageous yield, and that either of these factors would have had more of a negative impact on proceeds than the potential profits to be clawed back (paragraph 2.26). (g) Overall profit outturn for 1990-91 was 22 per cent (E214.4 million) higher than forecast. The Department note that dividends, which are the main determinant of proceeds, were however set on the basis of underlying profit performance not on the first year profit forecasts, which were necessarily set on a cautious basis (paragraphs 2.27 to 2.30). In view, however, of the limited track record of the companies and the correspondingly cautious basis on which forecasts for the first year were made, the National Audit Office and their advisers, Hambros, believe that it would have been appropriate for the Department to have explored in detail with their advisers whether higher net proceeds might have been achievable by making provision for clawback of a proportion of at least some part of any profits exceeding the forecast for
2 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
that first year. Even such a limited clawback would have called for a careful assessment as to whether a provision along these lines could be implemented without greater negative impact either on the dividends which the companies would be prepared to offer, or on the dividend yield which investors would be prepared to accept; and of course for careful presentation to companies and investors. The assessment of the Department and their advisers is that any benefit from such a provision would, in this sale, have been significantly outweighed by the loss of proceeds likely to have resulted from lower dividends or higher yield, or a combination of both.
Sale of all the shoreholding (h) The Department kept open the possibility of selling only part of the Government’s shareholding (60 per cent), in case there was a severe deterioration in market conditions. In the event, however, they proceeded with a 100 per cent sale because they saw it as offering the best balance of risk in the circumstances (paragraphs 2.36 to 2.41).
Pricing the offer (i) The Department set the fully paid value of the shares at nearly E5.2 billion. In so doing, they sought the best price they thought they could get in negotiating the sale of these new companies during a period of unsettled market conditions (paragraphs 2.46 to 2.52). (j) Following the start of dealings, the market valued the shares at E6.3 billion. The Department’s advisers attribute this to upward movements in the stock market between the time the offer had to be priced, when market conditions were uncertain, and the start of dealings (paragraphs 2.53 to 2.60). (k) The National Audit Office’s consultants, Hambros, agree that most of the increase in the value of the electricity companies above the Department’s target premium was attributable to the upward movements in the market generally, and in particular to the increase in gas and water shares. The causes of these upward movements are likely to remain unclear because they flowed from the investment decisions of a large number of individual institutions.
On widening and deepening share ownership Targets/planning assumptions (1) The Department succeeded in meeting their broad planning assumption for the number of individuals who might register their interest in the sale. The Department’s planning assumptions about the minimum level of subscription they saw as desirable, and their initial estimate of the number of applications to be processed, were however exceeded (paragraphs 2.65 to 2.69). (m) The Department considered, but did not adopt, formal target ranges either for the total number of applications or for the proportion relating to new shareholders. This was because, while they designed many features of the offers to attract the smaller and newer investor, they and their advisers concluded that the actual outcome would be largely determined by market conditions and media endorsement, which were too uncertain to predict with any degree of confidence. The Department
3 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
took the view that such targets would be artificial and possibly counter- productive. There were, in the event, 12.75 million applications, and research indicated that the sale may have attracted around 1.5 to 1.8 million new shareholders (paragraphs 2.70 to 2.73). While recognising these factors, it would, in the opinion of the National Audit Office, have nevertheless been appropriate for the Department to have set broad target ranges for numbers of applications and new shareholders, and taken these also into account in pursuing their objective of widening and deepening share ownership.
Monitoring the outcome (n) The National Audit Office believe that, building on the research they had conducted before the sale, the Department could usefully have extended the market research carried out following the sale, to verify the key factors influencing the buying and selling decisions of individuals in the circumstances of this sale. While such decisions have generally been shown in the past to have been heavily influenced by the expected or actual standing of the relevant share prices in the market, this might have been of assistance to departments in establishing broad targets in relation to subsequent sales (paragraphs 2.73 to 2.75).
On achieving overall recognition of success (0) The Department’s objective of achieving overall recognition that the sale had been a success was directed towards creating favourable perceptions and conditions for the sale, and hence for the subsequent electricity sales (paragraphs 2.77 and 2.78). It would be difficult to construct precise measures against which to assess the achievement of this objective. (p) Nevertheless, the high numbers of applications and levels of subscriptions, against the background of media endorsement of the sale, and the triggering of the reallocation of shares from institutional and overseas investors to individual investors, are indicators of the attactiveness of the offer to individuals. Limited adverse comment from the media on certain aspects of the sale, for example, the reduced levels of share allocations which many applicants received as a result of the high number of applications, does not appear to have had a negative impact on the successful carrying through of the subsequent electricity sales (paragraphs 2.79 and 2.80).
On achieving a modest premium (q) The premium at which the shares were traded when dealings began averaged 49 pence, by comparison with the Department’s target of 15 pence. Of the 49 pence premium, 30 pence was attributable to the general upward movements in the market which began after the offer was priced. The size of the balance (19 pence) suggests that the Department’s target of 15 pence (6 per cent of the full paid price) was perhaps ambitious in the circumstances of this sale (paragraphs 2.81 to 2.83).
4 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Controlling the 7 The National Audit Office’s main findings and conclusion are: costs of the sale Financial control and project management (a) The Department applied sound financial guidelines for the operational requirements of the sale, and applied appropriate procedures for the selection of their advisers (paragraphs 3.2 and 3.3).
Incentives for individual investors (b) The Department offered incentives, estimated to cost some E61 million, that were broadly in line with those available in the water sale. In doing so the Department sought to meet four aims: first, to establish a cost-effective means of achieving an attractive yield on the shares: second, to encourage registrations and subsequent applications: third, to encourage individuals to invest in their local companies: and fourth, in the process to avoid adverse media criticism which might deter investors. Market research carried out prior to the incentives being decided revealed no firm evidence that the presence of incentives would increase the total number of investors, but indicated some risk to the marketing of the sale-albeit difficult to quantify-of adopting materially less generous incentives (paragraphs 3.7 to 3.10). (c) In the opinion of the National Audit Office it would have been appropriate for the Department to have carried out further market research, between settling the broad structure of the incentives package in July and the announcement of the details in October, aimed at clarifying some of the uncertainties which their researchers had identified as to what types and value of incentives might be needed in the circumstances of the electricity sale. If the results of such research and analysis had pointed to lower incentives than had been offered in previous sales, the Department would of course have needed to consider, with their marketing advisers, how best to present this to the media, in order to avoid possible adverse criticism and so to secure a successful sale which maximised net proceeds, and to have balanced against this the risk to the success of the offer from any uncertainties they felt might remain in this area (paragaphs 3.11 and 3.12).
Incentives for employees (d) The Department provided employee incentives, estimated to cost some f51 million, which were intended to fulfil1 the Government’s commitment to offer employees a stake in their industry on attractive terms. These incentives were more generous than those offered in previous large privatisations because the Department concluded, following negotiations with the employees’ trade union representatives and with the management of the companies, that it would have been unrealistic to have offered materially less generous terms (paragraphs 3.13 to 3.15).
Underwriting commissions (e) The Department achieved through a tender process an overall rate of 0.17 per cent of the share price for primary underwriting. This was one of the lowest rates so far for a major sale of Government shareholdings (paragraph 3.16).
5 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
General conclusion 8 A number of previous privatisations had proceeded on the basis of a partial sale. Having considered whether they should follow this course, which all their main financial advisers strongly recommended against, the Department went ahead with a 100 per cent sale. This was on the grounds that not to have done so might have jeopardised the success of the sale and the Government’s overriding objective of completing all three electricity sales to a demanding timetable. Nevertheless, the novelty of the industry, and of the companies, and the uncertain market conditions at the time of sale, arising out of the deepening recession, the Gulf crisis, and the Conservative leadership election, made it particularly difficult for the Department to price the issue.
Recommendations 9 In the National Audit Office’s view departments should, when pursuing objectives set by the Government: . continue to give careful consideration to retaining a substantial minority shareholding to be sold at a future date when market conditions may be more favourable and when a longer track record will be available, rather than selling all the Government’s shareholdings at a time of market uncertainty; . continue to draw on the experience of such sales in appraising the possible benefits and risks of introducing innovations to sale methods and clawback provisions: . carry out further research before the sales aimed at resolving current uncertainties over the likely impact of incentives on the decisions of individual investors;
l carry out further research following the sales to ascertain what factors (including the role of the media and market movements) intluenced individual investors to apply for shares, and subsequently to sell or retain them.
6 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Part 1: The companies and the sale
1.1 In December 1990 the Secretary of State for March 1990, are the successors to the Area Energy sold the twelve regional electricity Electricity Boards. Together they own the companies in England and Wales. The National Grid Company, formerly part of the Department of Energy (the Department) Central Electricity Generating Board. Each of estimated that, in due course, gross proceeds the twelve companies has a specific will amount to some E7.9 billion: nearly g5.1 geographical base (see Appendix 2). billion will come from the sale of shares and some E2.8 billion from the repayment of debt 1.4 The twelve companies were floated on the on which interest at market rates is also London Stock Exchange by means of a fixed payable. Figure 1 sets out the gross proceeds price offer, open to individual and and the overall timetable for payment. Since institutional investors in the United the sale the Department have been merged Kingdom, and to overseas investors. Some 2.4 with the Department of Trade and Industry per cent of shares were retained to meet who are now responsible for the matters commitments arising out of share bonus and dealt with in this report. employee share schemes. The rest, amounting to some 2.1 billion, were offered for sale at f2.40 each, payable in the three Figure 1: Gross proceeds instalments shown in Figure 1. fmillion Saleof equityby instalments 1.5 Interest at market rates is payable on the December 1990 fl 2,124 October 1991 7Op 1,487 debt, repayment of which is scheduled over September 1992 7Op : 1,481 18 years. Equity Proceeds (Figure 7) 5,092 Deb, repaymen, varying instalments until 2008: 2.815 Objectives for the sale Gross Proceeds 7,907
Source: Depalfment of Energy 1.6 Within the Government’s overriding This Figure shows the estimated gross proceeds from the sale objective to complete the privatisation of the and the timetable for payment. electricity industry during the lifetime of the Parliament, the Department’s objectives for 1.2 In terms of proceeds, this was one of the the sale of the twelve regional electricity largest privatisations since the programme companies were: began in 1979. It was also one of the most to maximise net proceeds; complex, involving the simultaneous sale of the twelve regional electricity companies, to widen and deepen share ownership: who distribute and sell electricity to to achieve the overall recognition that the customers in England and Wales. The sale sale of the twelve regional electricity introduced an entirely new sector to the companies had been a success and thus to London Stock Exchange. It was the first of an lay a solid foundation for subsequent ambitious series of three sales planned in the electricity utility sales; and British electricity sector by the Government, to be followed by the sale of National Power in pursuit of these objectives, to generate and PowerGen, who generate electricity in an expectation that there would be a England and Wales, and the Scottish modest premium in the period following companies ScottishPower and Hydra-Electric. the start of dealings on the London Stock Exchange, and to achieve such a 1.3 The sale followed a radical restructuring of premium. the electricity industry’s organisation and its commercial and regulatory arrangements, the main features of which are summarised at Appendix 1. The twelve regional electricity companies, which came into being on 31
7 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Scope of National Audit Office examination
1.7 The National Audit Office examined: (a) how far the Department had achieved the objectives of the sale (Part 2 of Report); and (b) how the Department controlled the costs of the sale (Part 3 of Report).
1.8 The National Audit Office reviewed how the Department planned and carried out the sale, and the outcome. This work included an examination of Departmental papers, and discussions with Departmental officials and their principal external advisers. The National Audit Office also consulted the Chairmen and senior executives of three of the regional electricity companies (London Electricity Plc, Eastern Electricity Plc and Manweb Plc). The National Audit Office have obtained advice from Hambros Bank Limited and from SRU Limited, strategic market consultants. The National Audit Office are grateful for the assistance they have received in carrying out this study and producing their report.
- 8 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Part 2: Achievement of objectives
2.1 This part of the report examines how far the addition, the precise liming of the three sales. Department were successful in achieving and of key stages in the preparations, had to their sale objectives: avoid unsuitable periods for major public offers, such as August and Christmas. The (i) to complete the sale to timetable; Department also wished to avoid periods (ii] to maximise net proceeds; when the Government’s financial plans were likely to be under review, because at such (iii) to widen and deepen share ownership; times there might be uncertainty about what (iv) to achieve overall recognition that the could be written into the prospectus sale had been a success; advertising the companies for sale. (VI to achieve a modest premium. 2.5 The process of setting up the companies and establishing the new commercial and regulatory arrangements was completed on Completing the sale to timetable 31 March 1990. The Department needed most of the remainder of 1990 to complete their 2.2 The Government’s overriding objective was preparations for the sale. They decided to to complete the sale of the regional aim to sell the regional electricity companies electricity companies, along with the sales of by December 1990, on the basis that this the electricity generating companies and the would leave just enough time to sell the Scottish electricity companies, within the generating companies early in 1991, followed lifetime of the Parliament. The Department by the Scottish companies in the Spring of were responsible for the first two sales. The 1991. They aimed to keep open as long as Scottish Office Industry Department were possible the options of whether to sell all responsible for the sale of the Scottish their shareholding or only a majority. companies. The Government decided that the regional electricity companies should be sold outcome first. This was because, although none of the sales in this new sector was likely to prove 2.6 The Department completed the sale of the straightforward, the market might be regional companies, which were sold in their expected to regard the regional electricity entirety, by their December 1990 target. They companies as offering prospects of moderate subsequently sold approximately 60 per cent growth at relatively low risk, compared with of the shares in the generating companies in the electricity generating companies which March 1991. The Scottish sale was completed ware more exposed to competition. in June 1991. The National Audit Office are currently studying these subsequent sales, on 2.3 The National Audit Office examined whether which I expect to report to Parliament in due the Department had established a timetable CO”TSEZ. for the sale which would leave room for the subsequent sales within the likely lifetime of the Parliament, and whether they had Maximising net proceeds secured the sale of the Government’s controlling interest in the regional electricity 2.7 Within the overriding objective of completing companies in accordance with that timetable. the privatisation during the lifetime of the Parliament, the Department’s first priority 2.4 In drawing up the timetable the Department was to maximise the net proceeds of the sale, faced a number of constraints. In particular, a that is proceeds less costs. General Election was seen as possible at any time from Spring 1991; consequently, any sale planned in the immediately preceding period, or from then onwards, might be called into question on that account. In
9 i THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
2.8 The National Audit Office examined whether the institutions believed the offer price to he the Department had: reasonable. identified the most appropriate method of 2.11 Financial institutions underwriting an issue sale, consistent with their other agree to buy, at a fixed price, any shares objectives: which remain unsold at the end of the period valued the businesses by reference to the during which the shares are on offer (for a most appropriate criteria; major privatisation usually about three weeks). This enables the seller to complete considered ways in which a proportion of the sale. As a consequence. the price of the any value not identified at the time of the shares is effectively fixed by reference to the sale might subsequently be recovered, for share price at which the financial institutions example through suitable clawback indicate, in advance of lbe sale, thal obey are provisions; prepared to underwrite the offer. negotiated the sale on the best possible terms for the taxpayer. 2.12 Having decided to sell the shares by fixed price public offer, the Department considered Method of sale how this method should be applied, in the circumstances of this sale, in order to 2.9 Having regard, in particular, to their maximise net proceeds. In line with previous objective of widening and deepening share flotations, the Department sought to create ownership among individuals, the competing demand among the three types of Department decided that the most investor concerned: individuals, institutions, appropriate method of sale would be by and overseas. In particular, the Department floating the companies on the London Stock built into the share offer structure a feature Exchange by public offer, offering the shares which had appeared in previous for sale to individual, institutional and privatisations. whereby the proportion of overseas investors. The Department shares provisionally reserved for allocation to considered offering the shares for sale by individual investors as a group would be public tender, in which the shares would be increased. In this case, the proportion would sold to the highest bidders. They concluded be raised from 34.4 per cent to as high as 54.6 however that this method might have per cent of the issue, depending on the level discouraged individual investors, especially of subscription by individuals. The those considering applying for shares for the provisional allocations to institutional and first time, thereby jeopardising their objective overseas investors would be correspondingly of widening share ownership. reduced. This process is designed to add to the pressure on institutions to accept a 2.10 The Department therefore decided that the higher price than they might otherwise offer, offer should be at a fixed price which would on the grounds that, if they do not, they risk be the same for shares in each of the twelve losing part of their provisional allocation to companies. Individuals were allowed to apply individual investors responding to an for shares in individual companies. attractivelypriced offer. Institutional and overseas investors, however, had to apply for shares in package units, each 2.13 Against the background of a difficult and unit consisting of 1,000 shares, made up of potentially volatile market, reflecting shares in each of the companies. The concerns about developments in the Gulf, the Department also decided. in the light of the Department also considered, in the interests strong advice of Kleinwort Benson and the of maximising net proceeds, a range of brokers, and following precedents, that the possible technical innovations to this method offer should be underwritten, in order to of sale. These included not fixing the price ensure that they sold the shares on offer and until the end of the offer period, in order to floated the companies in accordance with give protection to investors or the their timetable. The Department and their Department, depending on movements in advisers also considered that, since this was a market prices during that period. An primary sale, and as there was no existing alternative would have been to split the offer market price, underwriting would into two. The majority of shares would have demonstrate to individual investors (and to been underwritten and placed with the media who influence their decisions) that
10 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
institutional and overseas investors, with among the institutions. Nevertheless the dealing commencing the next day, thereby Department sought to introduce a measure of avoiding the uncertainty of the offer period. competitive bookbuilding, by asking their The remainder of the shares would have brokers to provide, a week before the offer been offered to individual investors, over the price was fixed, details of likely support at usual period, but not underwritten. three prices.
2.14 The Department also considered whether Valuation of the businesses: dividend yield institutional investors should be asked to 2.17 When a utility business is floated on the specify in advance, via the Department’s London Stock Exchange, the basis on which brokers, how many shares they would be the offer price is normally fixed is the prepared to buy at a range of prices specified expected annual income return to by the Department, with subsequent shareholders, known as the yield. This was allocations going to the highest indicative the basis adopted by the Department for this bids. This is known as bookbuilding. It sale. The yield is usually expressed as a contrasts with the method traditionally percentage, representing the proportion of the followed on the London market whereby gross dividend to the share price. Thus to brokers take confidential soundings among maximise proceeds it is necessary to seek as the institutions as to the price at which they high dividends as possible consistent with would be prepared to buy the shares. company prospects. In this sale each ft million of dividends was equivalent to sane 2.15 An alternative way of giving the Department fle million of proceeds. a measure of protection against a rise in the market during the offer period would have 2.18 Businesses commanding low yields are been to provide that, in such an event, part typically those which are seen by the market of the shares provisionally allocated to as offering good growth potential and/or low institutional and cwerseas investors would be risk. These judgements also take account of withdrawn. Such shares would be re-offered how the market views the prospects of other to these investors by way of tender towards companies, since they are in competition for the end of the offer period. This technique, a investors’ funds with the business being sold. version of which was adopted for, though not The yield demanded by the market is also activated in, the British Petroleum sale, is influenced by factors extraneous to the known as a back-end tender. Another form of company, in particular interest rates and. tender was used in the BAA sale, when a more generally, prevailing levels of proportion of the shares were sold by tender confidence in the market. open to all investors. 2.19 Th’e lower the yield acceptable to investors, 2.16 The Department thus studied a range of the greater the proceeds to the seller floating possible techniques and innovations. The the company, because the price of the shares implications of each option had to be can be increased. Conversely, the higher the analysed and appraised within the yield acceptable to investors, the lower the constraints of the timetable. Not all could in price has to be because, in both cases the any case have been adopted simultaneously. yield has to be met from the same amount of In the event the Department accepted the total dividend. strong recommendation of their advisers that such techniques were likely, in the circumstances of this sale, to entail more risk 1 Example than benefit as regards maximising net proceeds. This was because the Department If the business expects to pay annual were seeking to sell substantial, new and dividends totalling El,000 and it is untried companies in a sector which was valued on a yield of ten per cent, the itself new to the market; and at a time when seller could offer say 10,ooo shares at f 1 market conditions were particularly unsettled each. This would result in sale proceeds because of the Gulf crisis and the deepening of flO.000. If however the business was recession. Kleinwort Benson, the valued on a yield of five per cent, the Department’s lead advisers for the sale, price at which the ~O,OOOshares could be advised that in the circumstances it would be offered would be increased to f2, imprudent to introduce such changes, doubling sale proceeds to f20,ooo. because this might undermine confidence J
11
I THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Valuation of the businesses: assets Clawback 2.20 As a separate exercise to pricing the offer, 2.24 The Department considered the case for the Department needed to confirm the introducing clawback provisions to enable nature, quantity and value of the companies’ the taxpayer to benefit from value not assets. The prospectus set out the net asset identified at the time of the sale. The areas values of the companies on both the historic examined included land and buildings, wsl basis (Lbal is Lha urigiual wsl lass where oue of the purposes of the depreciation) and the current cost basis (that Department’s valuation review was to is the replacement cost less depreciation). On identify property with significant potential the historic cost basis, this amounted to sume additional value. f7.7 billion; on the current cost basis, some f16.1 billion. Clawback on property gains 2.25 In view of the large number of properties 2.21 In settling these valuations, the Department concerned (over lOO,OOO),the Department and their professional advisers reviewed the concluded that the best means of protecting bases on which the companies’ fixed assets the taxpayer’s interest was to introduce were valued. Some 90 per cent were clawback provisions applying to land and operational assets. For most of these, current buildings generally. Under these costs were calculated by indexing historic arrangements, which cuver non-operational costs. The Department and their advisers land and buildings as well as interests in concluded that this was the best available land within the distribution system, valuation basis for such assets, since they clawback will be triggered by any property consist principally of specialised equipment gains, above certain thresholds, accruing or (typically, pylons, wires, transformers and treated as accruing to the companies as a switch gear) which is essential to carrying on result of disposals, or deemed disposals, the electricity distribution business, and has between 31 March 1990 and 31 March 2000. no easily ascertainable value in other Any additional value realised above markets. The values of other operational valuation as at 31 March 1990 or, in the case assets, in particular land and buildings, were of non-operational properties, the historic supported where appropriate by revaluation. cost, will be included in the gains subject to clawback. The Government will be paid half 2.22 For the remaining ten per cent of fixed the gains from such disposals, after allowing assets, in particular non-operational land and for corporation tax. So far there have been no buildings, open market values for existing such receipts. No clawback will apply to “se were mure readily ascertainable. In co- disposals of specialised property to a operation with the regional companies, the purchaser who continues the existing Department carried out a revaluation operational “se df the property until 31 programme which focussed on those non- March 2000. operational assets most likely to be disposable, for example surplus property. Clawback on profits Each of the regional companies appointed a firm of chartered surveyors and valuers to 2.26 The Department also considered introducing undertake the revaluation, on the basis of the clawback on a wider basis, including a survey costs being shared equally with the clawback on profits which might have Department. extended “ver a period of some years after the flotation. While the Department looked 2.23 This revaluation programme produced a seriously at this approach, they decided current cost value for the companies’ non- against such an innovation on the grounds operational land and building assets which that it would detract from investors’ normal was surne f575 million mure than the historic interest in the sustainability of profits, and cost. This outcome was reflected in the hence from proceeds. These views were prospectus. strongly shared by the Department’s advisers, principally on the grounds that such a clawback would have called into question the ability of the companies to maintain the expected dividends and dividend growth. The Department were advised that such a step would have been highly detrimental to
12 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
the market’s view of the companies and 2.28 The view of the Department is that, in the would have materially affected the yield at circumstances of this sale, the introduction of which they could be sold; and that the profit clawback, even limited to the first year, benefit of such a clawback would thus have would have had a damaging impact on their been less than the loss of value through negotiations with the directors about the lower pricing. In addition, complex levels of dividends and/or dividend covers procedures and ground rules would have which the directors might accept for that been needed to establish the basis for year, or on the yield, and that either of these calculating “excess” profits for the purposes effects would have had much more of a of the clawback, including allowance for negative impact on proceeds than the investment and maintaining the businesses. potential profits to be clawed back.
2.27 The Department’s consideration did not 2.29 Since the sale, all the companies have specifically extend to whether there was a announced pretax profits for 1990-91 higher case for a more limited clawback on profits, than forecast in the sale prospectus. Figure 2 for example to apply to at least some part of compares forecast with outturn for each any profits above those forecast for the first company; it shows that the profits were year of trading (1990-91). Such a provision overall 22 per cent (f212.4 million) higher would have had regard to the fact that the than forecast in the prospectus. The three companies were being sold on the basis of a regional companies whom the National Audit very limited track record, and to the Office consulted attribute these increases to correspondingly cautious basis on which the the net outcome of developments that were profit forecasts for that year were drawn up. different from the assumptions made at the The Department told the National Audit time of the sale, including a colder winter Office that, although the profit forecasts were leading to higher demand. and, at the time, prepared on a cautious and prudent basis, the lower than expected electricity generation level of dividends was the main determinant costs. of proceeds, and that dividends were set having regard to sustainable profit levels 2.30 These companies told the National Audit rather than the levels forecast in the Office that their profit forecasts at the time of prospectus. In the Department’s view and the sale had regard to the untested nature of that of their advisers, this factor, along with the newly privatised industry, and the need the low levels of first year dividend cover for a high degree of assurance that they that the directors of the regional electricity would produce at least the level of profits companies accepted as a result, effectively forecast in the prospectus. They said that ensured that value was obtained from first their forecasting difficulties had been year profits.
Figure 2: Regional Electricity CompaniesPre-lax profits 1990-91 ProspectusForecast O!AbJll Variation Electricitv Companv f million f million f million % Eastern 112~4 130.6 16.2 116 ~;;z;/didlands 115.688.9 141.8119.1 30.226.2 +23+34
MallWeb 52.5 59.0 6.5 +12 Midlands 91.9 109.7 17.6 +19 Northern 73.1 69.2 16.1 +22 NORWEB 63.2 70.3 7.1 +11 SEEBOARD 60.5 81.4 20.9 +35 Southern 122.7 139.6 16.9 +14 South Wales 45.9 56.1 12.2 +27 South Western 44.9 66.2 21.3 i47 Yorkshire 115.6 134.6 19.0 +I6 987.2 1.199.6 212.4 +22
Source: Prospectus and Company Statements This Figure shows that the trading profits of the twelve regional electricity companies for 1990-91 were overall 22 per cent (f212.4 million) more than forecast in the Prospectus.
13
:i THE SALE OF THE TWELVE REGIONAL. ELECTRIClTY COMPANIES
compounded by uncertainties over the effects maximum should be 20 per cent, given the of the recession on the demand for risks of the business. The Department, electricity, and the possible impact of the however, persuaded them to accept ratios of Gulf crisis on oil prices. between 31 and 43 per cent. Borrowings were agreed in total (including those for the Negotiating the sale: debt injection National Grid Company) at f&815 million. This meant that the Department had 2.31 To maximise proceeds from the sale, the achieved through negotiation interest cover Department sought to have an appropriate for most of the twelve companies ranging part of their investment in the companies from approximately three and a half times to represented by debt at flotation. This four and a half times forecast earnings. required the injection of debt into the companies for which the companies received Negotiating the sale: dividend statements no cash. The debt attracts market rates of interest. Whether or not the introduction of 2.35 Before agreeing a price with the underwriters new debt maximises total proceeds depends the Department sought to promote the sale on a judgement as to which is the higher: on the best possible terms for the taxpayer, in two ways. First, by creating demand for (a) the proceeds from repayment of the the shares through marketing. Second, as the principal sum of the debt; or shares were to be priced on yield, by (b) the additional equity proceeds that securing from the companies satisfactory might be realised from the sale if that levels of first year dividends. In negotiations amount of debt was not introduced. with the companies the Department achieved agreement to first year dividends totalling 2.32 Proceeds tend to be maximised by the f326.5 million, very close to their earlier injection of a sustainable level of debt. assessment of f330-340 million. They also Servicing debt capital out of any given level had to negotiate statements about dividend of profits is normally cheaper to a company policies and business prospects which were than servicing equity capital. There are two as positive as possible. reasons for this. First, interest on debt is tax deductible, while dividend payments are not. 2.36 These statments had to be negotiated with Second, dividends usually increase with the individual companies, whose directors time, which is not normally so in the case of were responsible for those elements of the interest, which if not fixed, will move only in prospectus. Failure subsequently to meet accordance with general interest rates. At such commitments is seen by the market as a higher levels of injected debt, however, the serious indictment of management. This proceeds of sale are likely to decline. This is placed the companies in a strong negotiating because the costs of servicing debt beyond position. The Department, however, had the certain levels are likely to be perceived by sanction of selling only a proportion of their investors as unacceptably high in relation to shareholding, whereas the management of earnings and a risk to the ability to pay the companies wanted the Department to dividends. dispose of it all.
2.33 In floating the companies, the Department, 2.37 A key stage in the sale process was the therefore, had to have regard to the publication of the pathfinder prospectus on maximum amount of debt that the companies 2 November 1990. The pathfinder was used could bear without endangering their ability: to stimulate institutional interest in the sale. to meet interest payments: to repay the debt It was a near final draft of the main when it became due; to pay dividends: and to prospectus, which was subsequently provide for future investment. published on 21 November 1990 and set out the particulars of the companies to be offered 2.34 The Department were advised and for sale. The Department sought statements considered it reasonable that the amount of from the companies for the pathfinder interest payable should on average be prospectus that dividends would grow in real covered four times by the earnings of the terms, having regard to the Department’s real companies, and that the ratio of borrowings growth assumption of three to five per cent a to equity capital should be in the range of 35 year. This assumption underlay their to 50 per cent. The companies disputed this negotiations with the companies over the assessment, most of them arguing that the price control regime and borrowings.
14 THE SALE OF THE TWELVE REGIONAL ELECTRIClTY COMPANIES
Negotiating the sale: sale of all the Negotiating the sale: dividend cover shareholding 2.42 The brokers advised that in normal 2.38 The companies would only agree to circumstances institutional investors would statements about dividends end prospects expect dividends to be covered not less then which were acceptable to the Department on two end a half times by net profits, end that the understanding that the pathfinder lower levels of dividend cover might pruspeclus also stated that the Government adversely effect the yield. In this sale, each was “offering 100 per cent of the ordinary 0.1 per cent movement in the forecast yield share capital of each of the regional et the final stage of pricing represented about electricity companies”. On 25 October 1990 f62 million of sale proceeds. the Secretary of State agreed with the companies’ condition, on the grounds that the 2.43 The dividend levels the Department Department’s objective of obtaining negotiated with the companies for the first acceptable dividend end prospects statements year (1990-91) would only be covered just had been achieved. under twice, on average, by the net profits forecast in the prospectus. Agreement on 2.39 The Department nevertheless kept open the these dividend levels was possible principally option of a 60 per cent sale even after the because the companies accepted that pathfinder was published, should market dividends should be fixed not on the basis of conditions against the background of the Gulf the profits forecast for 1990-1991 but of crisis so dictate. The Department were sustainable profits. These reflected the however told by their lead advisers end lead recovery, in later years, of the profits from brokers that, given the increasingly uncertain revenue allowed under the price control market conditions, end the companies’ lack arrangements but not scored in the first year, of a track record, such a retraction would be end hence higher sustainable levels of interpreted by the market as so defensive as dividend cover. to pose risks for the entire sale. 2.44 If these higher levels of dividend cover had 2.40 Another argument identified by the not been perceived es sustainable, the stock Department in favour of a 100 per cent sale would have been seen as riskier end the was the risk that en Opposition statement Department would have cane under pressure about repurchase of sufficient shares to give to accept a higher yield. The brokers were. more then 51 per cent state control of the however, able to point out to the institutions companies could have reduced investor that, es noted in the prospectus, the profit confidence in a partial sale. In addition there forecasts did not take into account the fact was the likelihood of considerable practical that inflation, by reference to which the difficulties of subsequently selling a 40 per companies’ charges are controlled, was likely cent share in twelve different companies to be higher then had been expected when which by then would not be Government the initial charges were set, although upward controlled. It would be far herder to adjustment to charges on this account would co-ordinate such a sale then was the ceee be reflected in the profits for 1991-92 or later while the companies were in Government years. This enabled underlying dividend ownership. The comparison of different cover to be regarded as nearer two and a half companies’ track records, which by then times. would be possible, would have been a further complication. 2.45 On the basis of these arguments, end of their other promotional efforts, by the end of the 2.41 In the light of all these factors the first week in November the Government’s Department concluded both that a 100 per brokers had reduced the institutions’ initial cent sale was possible end that, in the expectation of yield-from a range of 8.75 to circumstances of the sale, a partial sale 9 per cent-to 8.5 per cent. This represented would have signalled to the market en increased proceeds of between f146 million unduly tentative end uncertain approach. and f284 million.
15 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Negotiating the sale: pricing and group because of the risks they perceived to underwriting the offer the sale and the low rates of commission likely to be available. 2.46 The Department followed the traditional arrangements for underwriting. This takes Negotiating the sale: pricing decision place in two stages. First, a syndicate of primary underwriters, organised by the 2.49 By the time the issue was priced on 18 Department’s lead underwriter, commit November the question was whether it could themselves to purchase the shares, if be priced et 8.4 per cent, es recommended by necessary, from the time the offer is a number of the Department’s advisers, or et announced until the sale has been a lower level. The Department were keen to completed. As scann es the offer is announced, probe the latter. At the Department’s however, sub-underwriting is offered tn preferred target of 8.25 per cent, this would institutional investors, who then carry the have represented f94 million of additional risk until the sale is completed. If the issue proceeds. By this time the Department knew cannot be sub-underwritten. the primary they had been successful in creating market underwriters continue to carry the risk tension: 7.3 million individuals had themselves. So the primary underwriters will registered en interest in the offer. In addition, not commit themselves unless the brokers most of the Government’s overseas advisers can give them confidence that the issue will were generally confident of being able to be sub-underwritten. underwrite their trenche of the issue et a yield of 8.25 per cent, provided the United ‘2.47 Thus the most crucial pert of the sale was Kingdom market would accept it. pricing end underwriting the offer, which took place between Wednesday 14 November 2.50 Prior to the final pricing decision not all of end Tuesday 20 November. During this the six United Kingdom brokers for the sale period there was greet stock market said they could complete their share of sub- uncertainty. Three factors in particular underwriting et a yield of 8.25 per cent. One contributed to this: the continuing Gulf crisis, of the Government’s brokers (not the lead the deepening recession, end the contest for broker) advised that. in the particularly the leadership of the Conservative Party difficult market circumstances et the time the which began on 14 November. In addition to offer had to be priced, they could not provide these factors, there were long-standing end the primary underwriters with the required continuing doubts in smne sectors of the level of confidence et any lesser yield then press and the market es to whether the sale 8.4 per cent. This was because a number of could actually be successfully undertaken. institutions had told them they would not Accordingly, the primary underwriters of the sub-underwrite the offer below that level, offer looked for a high degree of confidence end this would have reduced the quality of that the offer price would be robust during the sub-underwriting list. The Department the offer period, in which market falls were concluded that. although it might have been seen by the Department’s advisers es a possible to arrange the sub-underwriting at distinct, end perhaps likely, possibility. For that yield, it would not have been possible to their part, the Department were concerned give the primary underwriters the degree of that the first sale in the series of three should confidence they wanted. This effectively not be seen es a failure. presented the Department with a choice between proceeding with the offer et a yield 2.48 The Department’s lead underwriters of 8.4 per cent or withdrawing it altogether. experienced difficulty in assembling a group of primary underwriters, on account of the 2.51 This choice also reflected ccmcern expressed uncertain market conditions, in particular by the Department’s brokers that ncme of the because of the Gulf crisis. Following individual companies should be priced et a negotiations with the potential underwriters, yield below 8 per cent. To achieve this with the Department decided on 10 November that a weighted average yield of 8.25 per cent, the in the event of a stock market fell linked to Department concluded that it would have the outbreak. or the imminent threat, of been necessary to squeeze the range of yields hostilities in the Gulf, the sale could be for the twelve companies to en unrealistic halted. Even so, there continued to be degree, end that this would have made it difficulties in assembling the underwriting
16 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
more likely that one or more of the 2.54 This increased value expressed itself in the companies would have opened at a discount, premium at which the shares were traded. which could have had a serious impact on The level of premium in the aftermarket was the subsequent electricity sales. significantly above the Department’s target of 15 pence. The premium in fact averaged 49 2.52 The Secretary of State decided, on the advice pence for the first 24 days trading, to 16 of the Department and their advisers, that the January 1991, before rising to about 70 pence offer should be priced at a yield of 8.4 per by the end of that month [Figure 3). cent, giving a value for the shares issued in the companies of nearly f5.2 billion, at a 2.55 The Department asked their lead brokers to share price of f2.40. report on the performance of the companies’ t shares on the London Stock Exchange, Outcome comparing the outcome with the lead broker’s advice at the time of pricing, on 2.53 At the close of the first day’s dealing in the behalf of the brokers’ syndicate, that 8.4 per shares (11 December] the market valued the cent was the appropriate offer yield. companies at f6.3 billion, compared with their value of nearly f5.2 billion at the offer 2.56 Between the setting of the price and the price, an increase of f1.1 billion. This is opening of dealings, the Financial Times All equivalent to a yield of about 6.7 per cent Share Index moved up by five per cent, compared with the 8.4 per cent offered.
Figure 3: Share premium-Start of trading (11 December 1990) to 31 January 1991
Premium/pence
20-
io-
0 ,,,,,,,,,,,,,,,,,,),,,,,,,,,,,,,,(, 11 December 1990 16 January 1991 31January 1991 Trading days
------Average premium -Highest -Lowest
Source: Published stock market prices at the close of trading This Figure shows that the average premium for all twelve electricby companies during the first 24 days of trading (to 16 January 1991) was 49 pence, rising to just under 70 pence by 31 January 1991. In the period to 31 Janbary 1991 the premium ranged from 35.5 pence to 90 pence.
17 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Figure 4: Movementsin share prices (fully paid basis) from the dale issue was priced to 31 January 1991
Percentage change in share prices
start Of Trading -5 ,,,,,,),,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,,, 18 November 11 December 16 January 31 January Trading days - FTAII Share Index -Water Package -Electricity Package “““” British Gas
Source: Published stock market prices at the close of trading This Figure compares movements in prices of the electricity package, the water package, British Gas, and shares generally in the weeks following the pricing of the electricity offer. I
British Gas stock by 10.6 per cent. and the stages of recovery, because they offered Water Package by 13.7 per cent (17.9 per cent prospects of moderate growth and relatively partly paid). See Figure 4. low risk compared with companies more exposed to recession. In their view, this 2.57 The Department were advised by their normal development might have been held brokersand other advisers that 30 pence of backby theprospect of thesale of the the unexpected element (34 pence) of the regional electricity companies. This was premium of 49 pence could be explained by because, until a clear perception of the likely the general upward movements in the market success of that sale emerged, institutions which began the day after the issue was were unable to make an accurate assessment priced on 18 November. They noted that of the call on their funds. There might most of the 19 pence balance of the 49 pence therefore have been a tendency to hold back premium was comparable with the from making comparable investments. for Department’s target premium of 15 pence, example in water and gas. leaving about four pence unexplained. but within a reasonable margin of pricing 2.59 The brokers advised however that these uncertaintiy. upward movements could not have been foreseen with any degree of confidence at the 2.58 The lead brokers advised that they would time of pricing the electricity flotation. normally expect utilities to outperform the Indeed, there were strong reasons (the Gulf market in the final stages of a declining crisis, the recession and the Conservative market, and to lead the market in the early Party leadership contest) for feeling concern
18 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
at the time of pricing that the market as a Definitions whole might nmve downwards in the days 2.64 The Department confirmed to the National immediately following. Audit Office that by widening share ownership they meant persuading 2.60 The brokers added that, even if they had individuals who had not previously owned predicted the subsequent price movements, shares or, if they had, no longer did so, to they would still not have been able to take purchase and retain shares. By deepening them into account in the pricing, on the share ownership they meant persuading grounds that the market as a whole had not individuals who already owned shares to add foreseen them (or else the price would have to their portfolios by purchasing and moved up sooner). Any attempt to take into retaining further shares. account a future price rise which the market had not foreseen would have been seen as Targets/planning assumptions: registrations incorrect pricing, and would have led to a failed issue. 2.65 The Department adopted specific targets for the marketing campaign, which related to the encouragement of registrations and which Widening and deepening share were based on the levels occurring in ownership previous sales, particularly of gas. Having regard to these targets and levels, the Department adopted a broad planning 2.61 Encouraging wider and deeper share assumption that up to between six and nine ownership among individual members of the million people might register their interest in public lay at the heart of a number of key the sale. This range also set snme decisions on the sale. These included the benchmarks for planning the logistics and for method chosen for the sale and the number budgeting. The Department’s broad aim was of shares made available for allocation to achieved: some 7.3 million individuals individuals. registered.
2.62 The Department had regard to the Treasury Targets/planning assumptions: subscriptions Minute responding to the 34th report of the Public Accounts Committee (198748) that it 2.66 The Department’s minimum requirement was was not practicable to set quantified targets to have the public offer fully subscribed. In in relation to widening or deepening share order however to trigger reallocation from ownership. While recognising the institutional and cwerseas investors to impracticality of setting precise quantified individual investors, they required targets, the Public Accounts Committee had subscription of at least 2.25 times the original considered that it would be advantageous for level of the public offer. They also wished departments to define in advance of sales the the sale to be compared favourably with broad assumptions which underlie their other successful public offers. Having regard objectives in relation to numbers of to these factors, as well as to allow a margin shareholdings held by individuals, for uncertainty, they applied a broad employees, and institutions. They should planning assumption that the public offer then systematically review how these needed to be snme three to four times assumptions turned out in practice. subscribed. This assumption underlay the Department’s monitoring of, in particular, 2.63 The National Audit Office examined whether their marketing campaign. the Department had: 2.67 The regular appraisals which the Department . defined what they meant by widening and received from their advisers indicated, prior deepening share ownership: to the offer, that the level of subscription for l established appropriate targets or the public offer was likely to be broadly in planning assumptions at relevant stages line with the Department’s planning along the road to the sale: assumption of three to four times subscription. Later, during the actual offer l carried out appropriate research: period, it emerged that a much higher level l monitored the outturn of the sale. of subscription might be likely. In the event, these shares were 10.7 times subscribed.
19 THE SALE OF THE TWELVE REGIONAL ELECTRKITY COMPANlES
Targets/planning assumptions: applications considered such targets artificial. Had they become known, and then not met or 2.68 The Department also made broad planning exceeded, this could have impacted assumptions for logistical and budget adversely on perceptions of success. and planning purposes about the number of share hence risked unnecessarily constraining the applications they were likely to receive from Department’s room for manoeuvre on pricing. individuals. These assumptions drew on the They and their advisers also concluded that levels of interest and indicative investment the outcome would be largely determined by levels shown by market research and market conditions and media endorsement registrations, as well as levels occurring in which were too uncertain to predict with any previous sales. They were progressively degree of confidence. refined during the period leading to the close of the offer, in the light of a programme of Share allocations surveys to monitor the impact of the marketing campaign, and of levels of demand 2.71 The tranche of shares previously reserved for among registrants and the general public. By allocation to individual investors was the close of the offer, the Department’s accordingly increased from 34.4 per cent to planning assumption about the number of 54.6 per cent of the total offer. After this applications to be processed had risen from adjustment the number of shares applied for some six million to perhaps ten million, the was 6.4 times the number available. The upper end of their contingency range. allocation policy was therefore severely constrained by the overall number of shares 2.69 In the event, the number of applications was available, as well as by London Stock 12.75 million-two and a half times the Exchange limits on the extent of preferential number of applications made in connection allocation to registered customers, in the with any previous privatisation. The context of a public offer. Department and their adivsers attribute this outcome to strong media endorsement late in 2.72 Applications for more than the minimum the offer period, when the market was rising; admissible number of 100 shares were scaled in particular media recommendations that down. Figure 5 shows that, while just over 25 applications should be made for small per cent of applications were for 100 shares, numbers of shares in several or all of the some 68 per cent of allocations were of no twelve companies. more than that number. The allocation policy adopted by the Secretary of State resulted in 2.70 The Department did not adopt formal target the creation of some nine million ranges for the total number of applications, or shareholdings out of 12.75 million for the proportion relating to new applications. shareholders. This was because they
Figure 5: Allocation of shares to individual investors (excluding employees)
Applications
Allocations
Source: Depafimenf of Energy n 100Shares.* 150Shares Note: *in one case. SEEBOARD. 90 shares were allocated This Figure compares applications far shares by individual investors with actual allocations. It shows that while just over 25 per cent of applications were for the minimum admissible number (100 shares), some 88 per cent of allocations were of no more than that number.
20 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANlES
Outturn: monitoring people had applied for shares, and why certain people sold their shares while others 2.73 Specific research, conducted by the retained them. The purpose of such research Department in early January 1991, between would have been to provide more the sale of the regional electricity companies information on key factors influencing and that of the generating companies, investors’ decisions, for example the impact indicated that around 1.6 to 1.6 million of advertising, incentives, media comment people (just under a third of the estimated and the expected and actual level of the five to six million people buying shares in aftermarket premium. the regional electricity companies) did not previously have any shareholdings. This 2.75 The Department believed that such level of new shareholders has been broadly additional research was not strictly necessary borne out by research conducted in to their purposes, since investors’ intentions connection with subsequent sales. A for the sale in prospect were seen as more separate, general, survey tiuuuuissiuued by relevant than their behaviour in past sales; the Office of Population Censuses and and since a considerable amount of research Surveys on behalf of the Treasury and the had been carried out before the sale into London Stock Exchange, was also carried out these factors, including people’s awareness in January and February 1991. Although not and their likelihood of applying for shares. conducted on precisely the same basis as the They have also noted: that advertising is Department’s research, its findings were directed at, and its impact largely evidenced broadly consistent es to the proportions of by the number of registrations: that retention new share ownership it implied. It indicated levels are higher where incentives are that about a quarter of all investors in the present: and that the final level of regional electricity companies held only applications is influenced by media comment. electricity shares and so were first time As to why some shareholders disposed of buyers or had sold any previous holdings. their shares, previous research and evidence from earlier sales had indicated that the 2.74 The Department had carried out a survey of higher the level of premium in the the previous water sale to ascertain the key aftermarket the more likely the investor is to factors that had influenced individuals’ sell. Against this background, and given the investment decisions. They also surveyed, in need to keep down costs, the Department and preparation for the subsequent sale of the its advisers did not think it would be cost- generating companies, what had influenced effective to undertake further research in those who had chosen not to buy the regional this area. electricity companies shares. The Department did not, however, carry out any further 2.76 Figure 6 shows that some 40 per cent of the research after the sale to examine why
Figure 6: Reduction of shareholdings lo 30 June 1991
Source: Department of Energy This Figure shows that some 40 per cent of the original shareholdings were sold by 31 January 1991. and that overall 60 per cent had been sold by 30 June 1991. For shareholdings with an incentive attached, however. the rate of selling was no more than 20 per cent by 31 January 1991 and 30 per cent by 30 June 1991.
21 THE SALE OF THE TWELVE REGIONAL ELECTRKITY COMPANIES
original nine million shareholdings were sold strength of public demand required some by 31 January 1991, and that, overall, 60 per difficult decisions to be made on share cent had been sold by 30 June 1991. For allocation. But the Department consider that shareholdings with an incentive entitlement the achievement of the subsequent electricity attached, however, the rate of selling was no sales with many of the structural innovations more than 20 per cent by the end of January considered but not thought prudent for, or and 30 per cent by the end of June. beneficial to, this sale, also reflects positively on the foundations laid. Achieving overall recognition that the sale had been a success Achieving a modest premium
2.77 The Department aimed to achieve the overall 2.81 In pursuit of their other sale objectives, the recognition that the sale of the regional Department aimed to generate the electricity companies had been a success, and expectation among potential investors that thus to lay a solid foundation for subsequent the shares would trade at a modest premium electricity utility sales. following the start of dealings on the London Stock Exchange, and to achieve such a 2.78 The Department told the Natinnal Audit premium. Office that this objective was directed towards creating favourable perceptions of Target the sale on the part of the media and 2.82 Initially, the Department set a target for the institutional and individual investors, and premium of ten per cent of the fully paid hence favourable conditions for the price, equivalent to 24 pence. On subsequent electricity offers. 18 November the Department reduced this target to six per cent, equivalent to 15 pence. 2.79 Some aspects of the sale received adverse This was in order to maximise net proceeds, comment. There was sane disappointment, while still offering encouragement to for example, over the levels of share investors. allocations made in response to the higher than expected numbers of applications and of Outtur” subscription. The Department’s view is that these factors did not produce such an adverse 2.83 In the event, at 49 pence the level of effect as to detract from perceptions of the premium in the aftermarket was significantly overall success of the sale. above the Department’s target. Thirty pence of the premium was attributable to the 2.80 The Department consider that the strong general upward movements in the market media endorsement of the sale, together with which began after the offer was priced. Most the unprecedentedly large number of of the 19 pence balance was equivalent to the applications and sufficient over-subscription Department’s target premium of 15 pence, levels to trigger the reallocation of shares leaving about four pence unexplained. This from overseas and institutions to individuals, was within a reasonable margin of pricing created a strong perception of success which uncertainty (see paragraph 2.57) for this sale. fully met the concerns earlier expressed by In the view of the National Audit Office and commentators about the flotability of the new Hambros. it suggests however that the and complex electricity industry. The Department’s target was perhaps ambitious in the circumstances of this sale.
22 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Part 3: Control of costs
Overall costs Department or the companies (for example, the companies’ auditors and surveyors), and 3.1 The Department estimate that the net costs to were judged to have given satisfactory the Government of the sale, excluding their service. In the two remaining cases, Treasury own staffing costs, value added tax and stamp approval for choice by single tender was duty, will amount to f191 million (Figure 7). obtained. The Internal Auditors were This represents just over 2.4 per cent of gross generally satisfied that selection procedures proceeds (Figure 1). had been sound and effective. They noted a high standard of clearly evidenced management checks for payments. Financial control and project 3.3 The Internal Auditors reported that management organisational control had been well developed and was regularly reviewed. 3.2 The financial control and management of the Management of the project was principally project were subject to a review by the through a series of working groups reporting Department’s Internal Auditors. They were to committees responsible for various aspects satisfied that sound financial guidelines and of the sale. A key element of project procedures were put in place and were management was to identify one person in generally adhered to in the context of the each working group as having lead operational requirements of the project. Of responsibility. The Internal Auditors the 53 principal advisers and contractors (see inspected master plans, work programmes Appendix 3), 16 were appointed with no and timetables, and found that these had competition. In 14 of these cases, the advisers been regularly reviewed. concerned were already working for the
Figure 7: Estimated proceeds and costs of the sale f f million million Value of shares $181.6 Less: proceeds foregone by way of incentives: Employees’ free and matching shares and discount 51.3 Individual investors’ bonus shares 38.0 89.3 Equity Proceeds 5,092.3
Less: other costs as folows: Underwriting 36.6 Selling, distribution, and braking commission 10.5 Receiving Banks, printing and other logistical costs 92.3 Marketing costs 15.2 UK Advisers fees 28.8 overseas Costs 18.5 Less: interest on application money (33.6) 168.3 lhxntive~ for individual shareholders 22.7 (electricity bill vouchers)
Net costs of the sale 191.0 Net proceeds from sale of shares 4.901.3 Proceeds from repayment of debt 2.815.0 Estimated total net proceeds 7,716.3
Source: Department of Energy estimated outium as at 31 December 1991 This Figure shows estimated proceeds, costs and total net proceeds from the sale of the regional electricity companies. Costs include figures arrived at by apportionment of joint costs incurred in connection with both the sale of the twelve regional electricity companies and the sale of National Power and PowerGen.
23 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Marketing water sale, and therefore needed to be seen as broadly of the same level of attraction. 3.4 The Department estimate the cost of The incentives were designed to encourage marketing the regional electricity companies individuals to invest in their local company, to be El5.2 million: this represents a saving thereby helping to ensure that none of the of sane E2.9 million compared with the twelve companies was left under-subscribed. budget. This saving was primarily achieved In addition, the incentives were a means of through lower advertising time and space encouraging individuals to register an costs as a result of efficient purchasing in a interest in applying for shares, since buyer’s market and was confirmed as regards incentives would only be available to those the television campaign by an independent who had done so. review. The Department’s advisers conducted market surveys to help them monitor the 3.8 Customers were given a choice. They could success of the marketing campaign (media opt for either bonus shares at the rate of one advertising and mailshots) towards meeting bonus share (up to a maximum of 300) in the Department’s planning assumption of return for each ten purchased and held at attracting between six and nine million least until the end of 1993, or for electricity people to register an interest in the offer. The bill vouchers (the value of the latter being Department and their advisers saw this somewhat less than the equivalent discount monitoring as essential to ensuring that they for the water sale). Non-customers were were on track and to help identify any entitled to bonus shares at the rate of one for negative factors. every 20 purchased (up to a maximum of 150). In arriving at these incentives, the 3.5 The National Audit Office examined whether Department sought to strike a balance the Department had considered the between those incentives which most possibility of reducing their advertising affected yield and those they expected to campaign, so as to avoid unduly high influence share retentions. The vouchers numbers of applications, and thereby reduce were primarily designed for the first of these, advertising costs and the costs of processing and the bonus shares for the second. applications. The National Audit Office found that the likely scale of applications became 3.9 The broad structure of the incentives evident only after the final weekend of the package had to be settled in June 1990, to offer period, following the rise in the market enable it to inform the drafting of the first and media endorsement of the offer. By the direct mailing which went to press in July time this information was available, however, 1990. Before deciding on this broad structure, the last advertisements had had to be placed. the Department asked their marketing researchers, British Market Research Bureau, to review the earlier research and give their Incentives up-to-date advice on the main findings from their research into the impact of incentives. On 31 May 1990 the Bureau advised that, for 3.6 The Department’s estimate, as at the end of about one-quarter of investors, the presence December 1991, of the cost of incentives is of incentives was irrelevant, and that they fly2 million. Of this, E51.3 million is for had no evidence that the presence of employee incentives (Figure 7). The balance incentives would increase the number of f60.7 million], is the estimate of the final cost investors. Nor did they have any evidence, of incentives for individual investors and is however, that the absence of incentives based on disposals up to 31 December 1991 would not lead to defection by regular and assumptions about continuing share investors who had cnme to expect them. The retention levels. research indicated that, other things being equal, incentives tied to customers would Incentives for individual investors encourage the level of shareholders coming 3.7 The Department saw the provision of from a company’s own customer base. This incentives for individual investors as playing was seen by the Department as essential as an important role in encouraging Lhern Lo regards securing the stability of the offer and, register for and subsequently to buy shares. through encouraging registrations, making it They designed these incentives in the possible to process very large numbers of expectation that they would be compared by applications in time. the media with the package on offer in the
24 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
3.10 The Department’s advisers concluded that, if to be possible. This is on the grounds that the Department decided not to have such a decision would have required a quite incentives, they might come under pressure different marketing and public relations to allow for this at the time of pricing the strategy from the start in relation to offer, resulting in a slightly lower price being incentives. The Department note that the set, with the proceeds of the sale being lower incentives offered to individuals will only than they would have been with higher price give rise to costs to the extent that individual and incentives. shareholders retain their shares long enough to receive the incentives. 3.11 In the opinion of the National Audit Office, further research might have clarified sane of Incentives for employees the uncertainties reported by the British 3.13 As in previous sales, incentives were offered Market Research Bureau. Among the matters to employees of the companies to purchase which such further research might have shares. Free shares were also offered. This addressed were: to what extent investors followed the White Paper commitment that took incentives into account in deciding there would be attractive provisions to whether or not to apply for shares: what ensure that employees could acquire shares. types of incentives and what values were The employee incentives package was drawn most likely to attract investors; to what up in consultation with the industry. Under extent positive or adverse media comment its terms, each employee could apply for free influenced investors; and whether incentives fully paid shares to a value of E140, and a could have been structured to give more further f2 worth for every completed year of encouragement to share retentions. continuous service. In addition, matching shares were offered whereby employees 3.12 There was not, however, sufficient time for could obtain two free shares for every share such research to be conducted before the purchased up to a fully paid value of Q20, broad structure of the incentives had to be together with a discount of 20 per cent on settled in July 1990. In the view of the fully paid shares up to f1,250. Employees of National Audit Office, there would however the National Grid Company and Electricity have been time to carry out research to help Association Services Limited were entitled to determine the value of such incentives since similar incentives. these details were not announced until 3 October. The Department told the National 3.14 For an employee with 15 years service (the Audit Office that, in their view and that of average for the industry] the incentives had a their lead marketing advisers, any further maximum value of f860. The personal research in the time available was likely to investment required from employees was less have been inconclusive and that, moreover, than half of that required in previous large perceived failure to match the water privatisations. The terms were however less incentives would have been to ignore the generous than those sought by the critical role of the media in determining employees’ trade union representatives and public attitudes. They do not believe it less attractive than those proposed by the would have been feasible to take a decision, management of the companies. Figure 8 Once the broad structure of the incentives compares the value of the package (at package had been announced, to offer constant December 1990 prices) and the materially less generous incentives than the investment required for this sale with those water sale, even if research had shown that of three previous large privatisations.
Figure 8: Employeeincentives Company YW Value of Incentives’ Personal Investment Required’ c c British Telecom 1984 693 2.817 British Gas 1906 782 2,542 Water Companies 1989 006 2,538 Regional Electricity Companies 1990 860 1,220 Source: Department of Energy Note: * Based on 15 years service. Value at December 1990 prices. This Figure compares the values of the incentives on offer to employees. and the personal investments required. for the sales of British Telecom. British Gas, the Water Companies, and the Regional Electricity Companies.
25 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANlES
3.15 About 98 per cent of eligible employees of Selling agents the twelve regional electricity companies, the National Grid Company and the Electricity 3.19 Stockbrokers and other financial advisers, Association, applied for and received free acting as selling agents, offer services which shares. Some 83 per cent took up the offer of include forwarding applications for shares on matching shares and about 41 per cent the behalf of individual applicants. For discount offer. successful applications submitted in this way, they were entitled to a commission of 1.25 per cent on the value of shares allotted. Over Primary underwriting 500 selling agents were involved. They were asked to submit their claims by 3.16 Primary underwriters are paid commission 18 January 1991. The claims totalled some f8 expressed as a percentage of the price at million. which the shares are offered. The Department set primary underwriting 3.20 The Department established procedures to commission rates by tender, with the count successful application forms bearing underwriting business going to the lowest the stamp of eligible selling agents. The bidders. The Department agreed that, having commission, thus calculated, was compared regard to underwriters’ fixed costs, the with the amount claimed by each selling arrangements should include a guaranteed agent and, in accordance with the terms amount of underwriting at the rate of 0.25 offered to agents, the lower of the two sums per cent of the proceeds. Overall the was paid in respect of each regional Department achieved a rate of 0.17 per cent. electricity company. The amount paid was This was one of the lowest overall rates so about f380.000 less than the total claimed by far for a major sale of Government agents. Part of this reduction was attributable shareholdings. to early findings from the work carried out by Touche Ross on behalf of the Department into multiple incentive applications and Receiving bank, printing and possible fraudulent applications. other logistical costs 3.21 Nearly all agents met the 18 January deadline for submission of their claims. No claims 3.17 The Department estimate receiving bank, were settled before June 1991, pending the printing and other logistical costs, including outcome of the checking process and progress those incurred in collecting the share on the work undertaken by Touche Ross. By instalments, to be f92.3 million (Figure 7). the end of June, however, all but a small These costs reflect: the complexities of the number of claims had been settled, with most offer structure; the simultaneous flotation of of the agents receiving a substantial interim twelve companies; the very large number of payment in early June. Any residual applications received (12.75 million]: and the payments due, along with those to agents fact that systems had also to be capable of whose claims required further examination, handling applications in the subsequent sale were made as the remaining queries were of the two electricity generating companies. resolved, and all were settled during the period to October 1991. 3.18 In the preparations for this sale. a contingency level of ten million applications 3.22 The research phase of the work on multiple had been set. This was over twice the applications in general was largely completed number of applications received in the by the end of 1991 and the police have British Gas sale, which had attracted the reviewed, or are reviewing, a number of largest number of applications in any cases for possible prosecution. previous privatisation. Despite the very high level of applications, and a sudden snowfall which cut off the main processing centre, the processing and despatch of documents was completed with no significant delays.
26 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Glossary of terms
Aftermarket The period following the start of dealing in shares newly issued on the London Stock Exchange.
Debt Injection Debentures issued to HM Treasury, repayable over various periods, for which the companies received no proceeds.
Distribution The local transport and delivery of electricity at 132 kV and lower voltages. Most customers receive their electricity at 240 V.
Dividend Cover A measure of the safety of the dividend, normally obtained by dividing the profit available for distribution by the net dividend to be paid.
Financial Times An index of the share values of some 650 companies quoted on the London Stock All Share Index Exchange, accounting for more than 90 per cent of the value of all listed shares.
Flotation The sale to individuals or institutional investors of shares which can then be traded on a market.
Generation The production of electricity.
Inkrest Cover Profit before interest and tax divided by interest payments.
Offier Price The price at which shares about to be issued are offered for sale.
Package Units Blocks of 1,000 shares consisting of shares in each of the twelve companies, with the relative proportion of each weighted by reference to the number of shares on offer in each company.
Premium The amount by which newly-issued shares are traded on the London Stock Exchange above the issue price.
Privatisation The sale to the private sector of assets owned by the state.
Public Offer Shares provisionally allocated to individual investors, which may be increased in number if demand from individuals exceeds a specified level of subscription.
Receiving Banks Banks commissioned by the Department to receive and process applications made by or on behalf of individual investors.
Selling Agents Financial advisers who acted on behalf of individual applicants and were enabled to claim a fee from the Department.
Subscription Total number of shares applied for in relation to the total number on offer.
SUPPlY The acquisition of electricity and its sale to customers.
Transmission The bulk transfer of electricity across the country at high voltages.
Underwriting An agreement under which, in return for a fee, financial institutions agree in advance to buy unsold shares. There is primary underwriting and sub-underwriting.
Yield The expected annual income return to shareholders from dividend payments, expressed as a percentage of the full share price.
27 THE SALE OF THE TWELVE REGIONAL ELECTRlClTY COMPANlES
Appendix 1 Electricity Industry restructuring
1 This Appendix outlines the main changes to the electricity industry in England and Wales provided for in the Electricity Act 1989.
Electricity Industry 2 Before 31 March 1990, most of the generation and almost all the public supply and before restructuring distribution of electricity were in national ownership. The generation and transmission of electricity were carried Out by the Central Electricity Generating Board (CEGB). The CEGB owned and operated the national grid (the high voltage transmission system), all the nuclear power stations and most other power plants in England and Wales.
3 Distribution was the responsibility of twelve area electricity boards. These took electricity from the national grid and sold it to domestic and business consumers, mostly on the basis of published prices (tariffs). Some very large customers had special agreements or contracts with the area boards or directly with the CEGB.
4 The Electricity Council exercised a co-ordinating role on matters of industry-wide concern. The Council included the chairmen of the twelve area boards and representatives of the CEGB. The Council also had certain specific responsibilities including offering advice to the Government on behalf of the industry as a whole.
White Paper 5 In February 1988, the Government published a White Paper (Cmnd 322) setting out “Privatising Electricity” their proposals for privatising the electricity industry in England and Wales. The White Paper proposed that the CEGB should be divided into three parts: the national grid would be owned jointly by the twelve regional electricity companies: and the power stations would be split between two companies: National Power, which would take 70 per cent of the generating capacity, including all nuclear power stations, and PowerGen, which would take the remaining 30 per cent. There would be competition in power generation between these companies and existing alternative sources, such as those in Scotland and France, along with new entrants to the generation market.
6 The monopoly power of the twelve regional electricity companies was to be curtailed: large customers would be able to enter into direct contracts with generators, with new entrants to the generation market or with regional electricity companies other than their local company. Customer interests were to be protected by regulation. The Electricity Council would be abolished.
7 To secure the place of nuclear generation in the market, each regional electricity company would be required to obtain a proportion of its power supplies from non- fossil (mainly nuclear) fuel sources. A fossil fuel levy was subsequently introduced to compensate the companies for the additional costs of nuclear power. The levy is ultimately borne by the consumer. The Government announced in July 1989 that the Magnox nuclear power stations [the first generation of reactors) would be withdrawn from the sale on the grounds that they were drawing to the end of their lives, and that it would not be appropriate to burden the private sector with the significant costs of their operation and closure. In November 198% lha Guvernment decided that the remaining nuclear power stations should stay in public ownership, on the grounds that unacceptable financial guarantees were being sought by the markets.
28 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
8 The Electricity Act 1989 provided the legislative basis for giving effect to these proposals.
The Twelve Regional 9 The companies distribute electricity and supply it to their customers. Because of Electricity Companies their existing distribution systems, the companies have the effective monopoly of distribution in their areas. Distribution provides the bulk of their operating profits. The companies also continue the subsidiary activities of retailing electrical appliances and electrical contracting work, as well as some electricity generation. They also receive dividends from their jointly-owned subsidiary, the National Grid company.
10 At present each company has the monopoly of electricity supply to smaller consumers in its area, defined as those demanding a load of up to 1,000 kilowatts of electricity, but not to larger consumers. From 1994, the monpoly will apply to loads of up to 100 kilowatts. This will still cover all domestic consumers. In 1998 the remaining monopoly powers of supply are due to be abolished.
Regulation 11 The Office of Electricity Regulation (OFFER), was established in September 1989. OFFER is headed by the Director General of Electricity Supply. The Director General’s primary tasks are to ensure that power supplies are secure, to promote competition, to protect the interests of consumers, and to ensure the adherence to the terms and conditions of the licences under which electricity is generated, transmitted, distributed and sold to consumers. Because the transmission and distribution of electricity is in effect a monopoly, and competition in the supply of electricity is restricted until 1998, the prices charged for these services are controlled by the Director General, by reference to changes in the Retail Prices Index. THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Appendix 2 The Twelve Regional Electricity Companies
Electricity Sales Income Number of Domestic Number of Value Of company Company ~urnaver) 1990-91 Customers (1990) Ordinary Shares at offer price Pm) (ml cm) Pm) Eastern 1.720.1 2.7 269.9 647.7
;;;d;dlands 1.326.71.224.0 1.91.7 218.0 523.3 Manweb 829.0 1.2 118.7 285.0 Midlands 1.329.1 1.9 209.4 502.6 Northern 776.4 1.3 123.1 295.4 NORWEB 1.240.3 1.9 172.7 414.5 SEEBOARO 1,047.5 1.7 127.4 305.7 Southern 1,546.O 2.2 269.9 647.7 South Wales 567.2 0.8 101.5 243.6 South Western 779.4 1.1 123.1 295.4 Yorkshire 1,242.5 1.6 207.3 497.4
Total 13.628.2 -20.2 2.159.0 5.181.6
Source:Sale pmpecfus and company accounts
30 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Appendix 3 Principal Advisers and Contractors appointed by the Department
Adviser/contractor Area of work Wight Collins Rutherford Scott Advertising
Rowe & Pitman Brokers
Wood Gundy Canadian Financial Adviser
Osler Renault Canadian Legal Adviser
Acxiom Computer Data base Systems
Lloyd Northover Design
Credit Suisse First Boston European Financial Adviser
NOIllLW3 Japanese Financial Adviser
Anderson Mori & Rabinowitz Japanese Legal Adviser
James Cape1 Lead Brokers
Kleinwort Benson Lead Financial Adviser
Dewe Rogerson Lead Marketing & Pubic Relations Adviser
J Henry Scroder Wagg Lead Underwriter
Slaughter & May Legal Adviser
Royal Mail Mail Services
British Market Research Bureau Market Research
Lowe Bell Marketing & Public Relations Adviser
J Chiene Pricing Adviser
Williams Lea Printing
Bernard Thorpe Property Valuers
Connell Hallum & Brackett Property Valuers
Cook & Arkwright Property Valuers
Debenham Tewson & Cheshire Property Valuers
Gerald Eve Property Valuers
31 THE SALE OF THE TWELVE REGIONAL ELECTRICITY COMPANIES
Grin&y J R Eve Property Valuers
Hartnell Taylor & Cook Property Valuers
Henry Butcher Property Valuers
Jones Lang Wootton Property Valuers
Knight Frank Rutley Property Valuers
Lamb & Edge Property Valuers
Matthews & Goodman Property Valuers
Weatherall Green & Smith Property Valuers
Bank of Scotland Receiving Bank
Royal Bank of Scotland Receiving Bank
Barclays Bank Receiving Bank/Registrar
Lloyds Bank Receiving Bank/Registrar
National Westminster Bank Receiving Bank/Registrar
Mail Marketing (Bristol) Registration Systems & Control
Touche Ross Regulatory/Accounting/Fraud Audit
Binder Hamlyn Reporting Accountants
Coopers & Lybrand Reporting Accountants
Deloitte Haskins & Sells Reporting Accountants
Ernst & Young Reporting Accountants
KPMG Peat Marwick McLintock Reporting Accountants
Price Waterhouse Reporting Accountants
Spicer & Oppenheim Reporting Accountants
Touche Ross Reporting Accountants
Imagination Roadshows
Price Waterhouse Systems Auditor
Merz & McLennan Technical Advisers
British Telecommunications (BT) Telephone Enquiry Processing
Goldman Sachs US Financial Adviser
Davis Polk & Wardwell US Legal Adviser
32