Cable and Wireless: Conversion to Public Ownership (Hansard, 25 November 1981)

§ Lord Beswick
My Lords, I beg leave to ask the Question which stands in my name on the Order Paper.

§ The Minister of State, Treasury (Lord Cockfield)
My Lords, gross receipts from the sale of shares amounted to about £224 million. Net Government expenses were about £4½ million apart from stamp duty and VAT, which are regarded as transfer payments. Expenses of some £550,000 were incurred by the company, and £35 million was reinvested in the company by way of a subscription for new shares. Otherwise, the sale proceeds have not been hypothecated to a particular use.

§ Lord Beswick
My Lords, do I understand from what the noble Lord has said that the net proceeds to the Exchequer were of the order of some £35 million? The noble Lord will probably correct me if I am wrong. If it were around that figure, is not £5 million an excessive cost for raising that amount? Since we are talking about how much went to whom, may I ask the noble Lord whether he will comment on the report that because the shares were undervalued when quoted the "stags" made £15 million in the first day's trading? Finally, may I ask the noble Lord, whose financial experience I deeply respect, whether he really thinks it sound management to sell off a gross national asset and then use the proceeds, as he said, "unhypothecated"?—by which he means for current household expenses.

§ Lord Cockfield
My Lords, so far as the noble Lord's first supplementary question is concerned, the gross receipts were £224 million. From that, one has to deduct £4½ million which leaves us with £219½ million. Of that, £35 million was then used in the purchase of new shares; which meant that the net proceeds would have been approximately £184 million. That, I think, is the correct figure. As far as the second supplementary question is concerned, it is true that when the shares first opened for trading they were traded at a substantial premium; but the number of shares traded represented only a small proportion of the total and it would be quite wrong to gross up from that figure in order to obtain a profit made by the people who had "stagged" this issue. "Stagging", unfortunately, is something which no one hitherto has found a way of avoiding; although, in this instance, obviously duplicated applications were rejected.
As far as the final supplementary question is concerned, it is the long established practice of all Governments that receipts are not hypothecated to a particular purpose; but I gather from what the noble Lord says that he disapproves of much of Government expenditure.

§ Lord Glenamara
My Lords, does the noble Lord recollect that these shares were put on the market at 168, but that on the first day of trading they rose by almost 20 per cent, and, therefore, those investors fortunate enough to get any made potential profits 758 of £40 million? Is it not highly inflationary to conjure £40 million worth of purchasing power out of the air in this way?—as the noble Lord never ceased to point out when talking about wage claims in the exchange that we had yesterday about the "free gift", so-called, of £50 to London Transport workers. Will the noble Lord comment on the suspicions voiced in the correspondence columns of The Times in the last fortnight, that the Government deliberately grossly under-price these shares in order to make a free gift for their friend in the City?

§ Lord Cockfield
My Lords, if I may start with the last point first, there is no substance of any sort in that allegation. As far as the facts are concerned, they are perfectly simple and on the record. The offer for sale was made on 21st October. The price has to be fixed at that date. Between the time the offer for sale was made and the time the shares were first dealt with, there was a rise in share prices generally. After a few days in which the shares were sold at quite high prices, they have now been traded in the range of 190p to 194p. If the noble Lord looks at the movement of share prices over the whole of this period—that is, from the date when the price was fixed until today—then the relationship that the current prices pays to the issue price is not all that much out of line with the movement in share prices generally.

Lord Morris
My Lords, in the light of the previous supplementary question, would not my noble friend agree that there is no such thing as a profit until it is realised?

§ Lord Cockfield
My Lords, my noble friend raises an important and valuable point. When people invest money, including bodies such as pension funds and insurance companies, they do so in the hope and expectation of those investments appreciating in value. That appreciation does not go directly into consumption.

§ Lord Davies of Leek
My Lords, is the noble Lord aware that, despite the knowledgeable answer that he has given, the City itself said that the Government had underestimated the price of these shares when they closed on 31st October; and that no colourful expression like "hypothecating" will cover that fact? Do the Government, before they enter into this ideological obsession of privatising profits and socialising the losses, discuss with the Ministry of Defence the effect of sharing out and selling off of such shares as Aerospace and Cable and Wireless—which are not remote from defence—and that, with defence, there should be discussions before the action of selling the shares is taken?

§ Lord Cockfield
My Lords, the noble Lord raises a whole series of points. May I remind him that rather less than 50 per cent. of these shares were sold, so that what we have established is an equal partnership between the private and public sectors in this company. This is the sort of development that I should have thought the noble Lord would welcome—and I will make no more of it than that. If one comes to press comment, one can find in the press a very wide variety 759 of views expressed. The Standard newspaper on the day of issue said that it was: an ambitious price". They said that the shares were not cheap. The Financial Times, a reputable authority in this field, the following morning said: priced tightly enough to discourage stags". The Financial Weekly, another authority in this field, said: After the market shake out, the rating showed boldness". One can quote a large number of newspapers expressing different views, as one always can; but at the time the offer was made there was no consensus of opinion at all that it was in any way underpriced.

§ Lord Davies of Leek
My Lords, I am grateful to the noble Lord for that reply, but the fact is that the shares in those 10 days were over-subscribed to the amount of £1,260,000 for £224 million worth of shares. That is the fact; and that is what was done with the public money.

§ Lord Cockfield
My Lords, I am aware of the fact that the shares were over-subscribed. The noble Lord's complaint is that the shares were under-priced. I gather that his real complaint is that the issue was a success instead of a failure.

§ Lord Jacques
My Lords, is the Minister aware that a well conducted family never has to sell the furniture to pay the grocery bill?

§ Lord Cockfield
My Lords, there is no question here of selling the furniture to pay any grocery bills. What has happened is that half the shares in a company (where there is no strong case for it being in the public sector) are now in the private sector; and we believe that this is a more satisfactory arrangement.

§ Lord Denham
My Lords, if the noble Lord, Lord Beswick, will forgive me, we have been 26 minutes on three Questions. The House might think that after he has asked his supplementary question and my noble friend has replied we should move on.

§ Lord Beswick
My Lords, may I say to the Chief Whip and to the House generally that there is a case to be made for curtailing the replies on the first one or two Questions. Sometimes the time is used up on the first—

A noble Lord
Then get on with it!

§ Lord Beswick
My Lords, may I ask the noble Lord the Minister whether he will explain to his noble friends at the back that if one buys at 196 and sells at 235, one is realising a profit? While accepting from the Minister that a judgment must be made when floating a company on the market, nevertheless a pattern is beginning to emerge, that the underwriters are getting their 1½ per cent. without an element of risk.

§ Lord Cockfield
My Lords, I am not aware that anybody sold at 235; in fact the highest price, to the best of my knowledge, was 205. This is an important 760 difference. I realise that criticism is commonly directed against underwriters, and it is a point that one needs to keep in mind. Nevertheless, it is the accepted position that issues of this sort are underwritten, and this guarantees that even if the market moves against the issuing body, nevertheless the money is received.