BP sale makes Treasury pounds 180m

The Government yesterday made a profit of pounds 180m on its last remaining shares in BP, which the Bank of England and the Treasury have kept since a disastrous privatisation sale during the1987 stock market crash.

The pounds 513m of shares were placed by SBC Warburg after the investment bank won a secret City auction for the business, organised by Rothschild, the Government's advisers, late on Monday evening. They represent 1.8 per cent of BP's shares.

Andrew Smith, Labour's Shadow Chief Secretary, invoked Lord Stockton's famous gibe from the mid-1980s to declare: "The Tories are intent on selling off the family silver to pay for short-term tax cuts."

Rothschild was commissioned earlier this year to sell a share portfolio of 34 government "bin-ends" worth more than pounds 1.2bn in total, of which BP is the first and largest to go.

Other significant holdings to be put on the block later include the airports operator BAA and National Power.

The BP sale was claimed to be the largest bought deal of its kind in the City and used a rarely employed procedure.

Warburg bid 508p for the 101 million shares against three or four other securities houses, who were invited into Rothschild at 8pm, after the markets had closed.

The firms were not told which of the stocks they were bidding for until after they arrived, and each team was closeted in a separate room, told how many BP shares were for sale and asked to bid a price. The only indication they had been given in advance was that they would be called upon to commit a large amount of capital.

Rothschild kept the bidders apart all evening and Warburg said it still did not know who the others were, though City speculation was that BZW, Merrill Lynch and at least one other American house were involved.

Starting when the markets opened yesterday, SBC Warburg placed the holding with about 100 institutions, half UK and continental and half in the US, by 3pm. The placing price was 513p, a profit margin of 5p a share - or pounds 5m - and BP stock closed at 517p, though this was down 14p on the opening.

SBC Warburg was basking in glory afterwards, because the scale of the deal appeared to vindicate the motives behind the merger that brought Swiss Bank Corporation and the English merchant bank together earlier this year.

One SBC Warburg source suggested the two could never have won the auction separately, because it required SBC's capital and skill in agency trading and Warburg's relationships, distribution and research.

The bulk of the Government's BP holding was acquired in 1987 as part of the dramatic manoeuvres surrounding the pounds 7.25bn sale of its 31.5 per cent remaining stake in the company, for which Rothschild, was the government adviser.

The October crash occurred after the underwriting but before the sale went through, leaving the City facing large losses as the BP price plunged.

But Lord Lawson, then Chancellor, insisted on pushing ahead against opposition from the City, which invoked a force majeure clause to void the underwriting.

However, he agreed to a "safety net" to prevent further falls in the BP price, as a result of which the Bank of England picked up 39 million part-paid BP shares, for pounds 27m. Fully paid, the shares would have cost 330p. The Treasury also held on to a further 68 million shares issued to it at the time by BP at the same price. The holdings the Government retained were worth about pounds 330m when fully paid.

Ten biggest stakes remaining

Value (pounds m)

at 14 Nov 1995

BAA 142.9

BT 37.2

Mersey Docks & Harbour Company 54.5

North West Water 15.4

Severn Trent 23.0

Thames Water 19.2

National Power 131.2

PowerGen 94.0

Scottish Hydro-Electric 25.9

Scottish Power 68.2