Slump At The Sales Window

By Christopher Redman/Paris

It was intended as a highlight of Prime Minister Margaret Thatcher's ambitious program to put Britain's vast array of state-owned businesses back into private hands. But when some 2.2 billion government shares in British Petroleum -- about 31.5% of the company's equity -- came up for sale last week, the result was an enormous bust. In the wake of Black Monday, BP shares already on the market were trading well below the $5.68-a-share issue price of the new offering, and investors therefore shunned the new $12.2 billion flotation. Underwriters were stuck with millions of unsold shares, and could face losses totaling $1.7 billion. Earlier, British, U.S. and Canadian financial institutions had pleaded with British Chancellor of the Exchequer Nigel Lawson to postpone the event. But Lawson chose to forge ahead, adding a concession: for the next month at least, shareholders who want to cut their losses will be able to sell their shares at a deep discount to the Bank of England.

In France the conservative government of Premier Jacques Chirac took a different kind of stock-market beating. Only two days before Black Monday, the government had successfully completed the $2.6 billion sale of state-owned Compagnie Financiere de Suez, a financial combine. Last week Suez's debut on the battered Paris Bourse was suddenly postponed. Reason: in the continuing stock slump, shareholders would be hit by immediate losses. To cushion the blow, the 1.6 million small investors who bought Suez shares may eventually be allowed to pay in installments.

All over Western Europe last week, governments were rethinking, at least momentarily, one of the most successful economic gambits of the past few years: the sell-off of state-owned assets, known as privatization. Until now, that sell-off has been Europe's most open homage to the free-enterprising ethic of Reaganomics. The theory was that bloated state businesses would slim down after privatization, streamlining operations and improving profits as well as stanching flows of government red ink.

Privatization has paid off handsomely in Britain, where 16 major state-owned enterprises, including Jaguar and Rolls-Royce, have been returned to the business sector since Thatcher first took office in 1979. By and large, the companies have prospered. Since it came to power last year, the Chirac government in Paris has sold 25 companies, including the merchant bank Paribas, the telecommunications giant CGE and the large commercial bank Societe Generale. The idea has started to catch on elsewhere. In Portugal, where state businesses have sucked $13 billion in operating losses and subsidies from the economy since the leftist revolution of 1974, the new Social Democratic socialist government of Prime Minister Anibal Cavaco Silva has promised similar reforms.

The crash, however, has inspired considerable skepticism about the virtues of free-market forces. Last week opinion polls showed that a majority of the French people favored a slowdown in the sell-off. Depressed market conditions forced the Premier to postpone the sale of the government's majority share of the defense and electronics group Matra, a $23.5 million enterprise. Meanwhile, the West German government appeared poised to put off the sale of its remaining 16% stake in auto giant Volkswagen (1986 revenues: $29.3 billion), despite earlier pledges of a sale this year.

Nonetheless, some countries remain undeterred. Mediobanca, the leading Italian merchant bank, with assets of $130 million, is still expected to go on the block sometime next year. In Britain, despite the BP setback, Chancellor Lawson last week predicted that privatization would go "from strength to strength." The next item of government business is privatization of Britain's $76 billion worth of electrical utilities.

The question each government must now face: Will there still be buyers?