CORRESPONDENCE
| DOI | http://doi.org/10.1111/j.1468-2230.1991.tb02658.x |
| Published date | 01 March 1991 |
| Date | 01 March 1991 |
March
19911
Rcviews
CORRESPONDENCE
In
the article on the pricing of privatisation issues by Tony Prosser
in
the May
1990
issue of
The
Modern
Law Review,
it
says on p
3
15, ‘One way of roughly assessing
the extent of such underpricing is to examine the discount (sic) on offer price
at
the end of
the
first day
of
trading
in
the privatised sharcs. This gives some idca
of the profits
to
be madc from quick sales.’ It goes
on
to give discount figures of
‘92%
in
the
casc
of British Tclecom,
36%
in the casc of British Gas,
73%
in
the
casc of Rolls Royce, and
31
-57% in
the
cases of the water authorities.’
The author
is
here confusing two things. These percentages are a guide to the
profits that could be made
on
that part of your application that was accepted
(in
most cam for the public, not much); but they are not an indication of thc degree
of underpricing. For that, the percentage gain on the first day of dealings has to
be
adjusted for the fact that the sharek were only partly paid.
Comparing the first day dealing prices with
the
offer prices for the larger
privatisations after adding back the future calls
to
both figures, produces
the
following
premiums: British Tclccom
-
33%,
British Gas
-
9%,
British Airways
-
35%,
Rolls Royce
-
36%,
British Stccl
-
2%,
Thatiies Water
-
17%.
I
havc not allowed
for the time or option value of the partly-paid status, which makes these figures
an underestimate
of
the
true first day premiums. Against this must be set
the
discount
of
17%
on
the
1987
BP issuc.
These figures are probably higher than
the
equivalent figures for French privatisa-
tions, and Tony Prosser may still have a point
in
his comparison
with
the
French
cxperiencc; but tlic conclusion
he
draws about the effect
of
the
administrative controls
in
France must be somewhat more tentative on the basis of the revised figures.
Alistuir Alcock
CJti
iversit.y
of
Bi
rming
hunt
Tony
Prosser’s
Reply
The purposc of the percentagcs quoted was
to
demonstratc the scale of
thc
possible
redistribution of resourccs through quick sale immediatcly after privatisation.
I
agrcc
that thcy cannot be read up directly
to
provide a total figure for underpricing, always
a somewhat speculative exercise; though for an interesting attcmpt to do
so,
scc
the articlc citcd at this point
in
the article IJenkinson and Meyer, ‘The Privatisation
Process
in
France and the
UK’
(1988) 32
Europecin
Ecorioriiic
Review
4821.
I
in
fact did statc
in
the
article that the relation between thesc figures and the total
underpricing
in
Britain and in France is a tcntative one; nevcrtheless, even on the
basis
of
the
ad.justed figures provided by
the
writer, my point remains that there
is
evidence of.
a
greater degree of underpricing in Britain than
in
France, and that
oiie
of
the likely influences
in
this was the greater degree of
(I
pr.iori
scrutiny of
pricing required by
the
decision of the Conseil Constitutionnel.
327
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