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The English are also selling their assets cheaply

Written By: - Date published: 8:35 am, October 25th, 2013 - 23 comments
Categories: Privatisation - Tags:


There are many troubling things about the Meridian share float.  Blowing $1.1 billion of our equity as well as the cost of selling the shares is just the start.  But you have to wonder if the price is too cheap.

For instance why wasn’t the float cancelled?  After all according to the offer document “[t]he Offer may also be withdrawn at any time before the allotment of Instalment Receipts in the absolute discretion of the Crown.”  My reading of the document is that the allotment occurs in a couple of days time.  Theoretically the Government should forgo the float and it it was thinking of the interests of the country it would do so.  Expect however political interests to trump any such thoughts.

The prospectus indicates that the return on investment for the first 12 months will be over 10%.  Get this, we are paying down debt with an interest rate of about 5% so that we can lose an income stream which in the first year will be twice that amount.

Over in the United Kingdom the tories are engaged in a similar process in selling a public asset for way less than it was estimated to be worth.  Royal Mail has recently been privatised at an enterprise value of £4.1 billion.  The trouble with this is that many Banks approached for a vaulation suggested that it is worth more than twice that amount.

According to Sky News:

JPMorgan told the Government earlier this year that it believed Royal Mail could be worth up to £10bn, including its debts, ahead of the postal operator’s privatisation.

Sky News has learnt that corporate financiers from the Wall Street banking giant presented a spectrum for Royal Mail’s value ranging from £7.75bn to £9.95bn – the top end of which was more than two-and-a-half times the price at which ministers ultimately sold shares in the company in the most important state asset sale for decades.

The Government sold shares in Royal Mail for 330p each earlier this month, valuing the company’s equity at £3.3bn.

Including its roughly £800m of net debt, the privatisation effectively attributed an enterprise value to the company of £4.1bn, above the average valuation of £3.6bn ascribed to it by the nearly two dozen firms which pitched to advise on the sell-off.

The Government has ridiculed these claims but the share price has soared from 330 p each earlier this month to around 530p a couple of days ago.  At this price the group’s value is about £6.1bn including net debt.

Billy Hayes, General secretary of the Communications Workers Union has said:

On the opening day of the flotation Vince Cable wrote off the undervaluation as froth. A week later, we were told it was the fault of the CWU. We now have a prima facie case of a conspiracy against the UK taxpayer who were opposed to the sale and have now been robbed of billions. In any other walk of life this would be a sacking offence and we call on Vince Cable to resign. A full inquiry should be launched into the mis-handling of this unnecessary privatisation by Vince Cable. We would also like the matter to be referred to the public accounts committee to scrutinise how badly the taxpayer has been left out of pocket.

What will be interesting is the information relied on by Cabinet to set Meridian’s share price.  I suspect that as in the UK the price was set low to make sure that the shares sold and to give a healthy return to investors.  It may be that National has followed the UK example.  Its obvious intent to make sure that the Genesis float succeeds is obviously a major consideration.

It is clear that in the United Kingdom and in New Zealand we have Governments intent on divesting collectively owned assets so that the wealthy can increase their wealth.

Shame on them.


23 comments on “The English are also selling their assets cheaply”

  1. Tat Loo 1

    Reruns of the standard international crony capitalist playbook. No concern for making even more workers unemployed during a Great Recession, no concern for extracting even more from society and from the environment when there is so little remaining to give.

    It’s like the elite class retreat into a Versailles stronghold brain funk and cannot get it into their heads re: self interest, properly understood.

    At the end of the day, no one is better off with mass economic and civil deterioration. No one is better off in a society where the infrastructure is falling apart and basic functions of a civilised nation (like the mail) are constantly degraded.

    When peoples’ belief in the civil religion of infinite progress is shaken, very interesting and unpredictable things will occur.

    • But that is the point Tat Loo.
      Self-interest properly understood is that the capitalists’ whole world is centred on their private accumulation. Their morality is circumscribed by private profit.
      Each capitalist pursues his/her self-interest at the expense of every other capitalist.
      There is no collective capitalist self-interest in the survival of ‘civil’ society let alone civilisation beyond the next quarter.
      The only class with a universal interest (not the sum of individual self-interest) in a public or common future is the working class that collectively produces social wealth.
      The interesting thing that will happen is when that collective class interest takes the form of a socialist ideology and penetrates the deep recesses of the bourgeois ideology.
      When that happens and the collective wealth producers expropriate the private wealth accumulators, the ennui and cynicism will be buried in the rush for superlatives.

  2. even the herald today has an editorial pointing out that this whole asset-sale drive..

    ..is not being done for reasons that come within a bulls’ roar of economic-sanity..

    ..but is purely being driven by ideology..

    ..and i will add what the herald left out..

    ..that these randite-scum doing this to our country/future/people..

    ..are traitors..of the worst sort..

    ..through and through..

    ..’the economically-literate right’…


    ..phillip ure..

    • Chooky 2.1

      +1….very suspicious….who is going to make a killingin the long term?….follow the money….Nact politicians’ ‘blind trusts’?…overseas banks like Goldman Sachs?…cronyist capitalist friends?

      ….all NZers should be GIVEN shares in their own companies or the Key /English Nact programme of NZers State Asset Sales should be rescinded

      It is traitorous and pure transfer of wealth, thieft…..what is happening

      • johnm 2.1.1

        Hi Chooky
        “It is traitorous and pure transfer of wealth, thieft…..what is happening”
        + 1,000,000% right!

      • SpaceMonkey 2.1.2

        Economic treason needs to be added to the Crimes Act.

        • johnm

          Hi SpaceMonkey
          Yes the only way to stop the likes of Shonkey and his GoldinSacks mates looting the Country, however it’s a bit late now- all those wannabe rich like Shonkey types vote for him to protect their rentier profits.

        • Murray Olsen

          NAct are thinking of that. They define it as joining a union.

    • thatguynz 2.2

      +1 PU..

    • Dumrse 2.3

      There is none so blind as those that will not see……

  3. Disraeli Gladstone 3

    To be fair, there was a cap put on place though so that many high-end investors didn’t recieve their shares in favour of family investors. To be equally fair the other way, a lot of those family investors then sold them to make a quick £300-400.

    But, the asset sale in Britain was done somewhat better. Employees were given shares for free and so on.

  4. The Gormless Fool formerly known as Oleolebiscuitbarrell 4

    So, you complain that MRP was sold at an overvalue and Mom and Dads have been diddled. With Meridian, the complaint is that they’ve been sold too cheaply and the vendor has been diddled. You really are in a no-lose situation.

    • Tat Loo 4.1

      Just points to the inadequacy of the thinking behind the National Government’s asset sales programme. They overshoot, they undershoot, but they cannot get it right.

    • mickysavage 4.2

      I am not sure that I have ever said that MRP was sold for too much although the process has left some mom and dad investors out of pocket.

  5. bad12 5

    KiwiPower tho will give a Government on behalf of the people the muscle necessary to regain much of the shareholding and control of the companies involved in the production of electricity,

    Mighty River Power’s slide in value continues, last night trading as low as $2.15 a share and only recovering this morning to $2.17,

    Given that slide and the market listing price of the next company up on the block i think we can expect the market to settle at a price for both companies somewhere in the realm of $1.70 over the short period,

    However, given the advent of the next Labour/Green Government introducing Legislation to the House,(hopefully within the first 100 days of office), which will enable KiwiPower to set by regulation the price of wholesale electricity i would fully expect the share price, considering the low offer which will be forthcoming for the 3rd sale having further diluted the market value of the current 2 companies already marketed, will upon that Legislation becoming Law have the market settle upon an average share price across the 3 of somewhere in the realm of 70 cents a share,

    Considering such a price alongside the ability of ACC and the Cullen Super-fund,(given an incoming Labour/Green Governments ability and inclination to restart contributions of a sizable amount into the latter), there is much to be said and even more to be gained from having the Finance Minister direct both those funds to have a mass of buy orders in for all 3 of those assets at that price,

    In essence the market value of a share in any one of these companies in the medium term is no more than the cost of a roll of toilet paper…

    • bad12 5.1

      Just as an add-on with regards the Cullen Super-fund, given that KiwiPower will in effect allow the next Government to somewhat dictate what the market price of the shares in all of the sold off electricity companies will be it can be then seen where even borrowing to allow contributions to this fund will produce a significantly robust return so as to justify such borrowing…

  6. greywarbler 6

    On asset sales –
    Bill Rosenberg presentation to trade unions – very good of course. Very informative. Good charts. Good stats and figures. Concise summary.

    From report ‘Take Back the Track’ on the Second Roger Award in 2000 by Murray Horton (CAFCA) who was a railway worker himself from 1976 to 1991. (Shows how these right wing subversives used the Labour Party as a front to advance their own plots and to confuse trusting workers as to the real impact and intent of their machinations.)

    Several commentators drew attention to the irony of calling the campaign “Save Rail”. I was a Railways worker and union official, in the early 1980s, when Richard Prebble, as Opposition rail spokesperson, barnstormed the country on just such a campaign. He headed a march of several thousand Railways workers through central Christchurch; the then union put tens of thousands of dollars into Labour’s 1984 election campaign funds.
    As Minister of Railways in the Labour government, Prebble promptly decimated the Railways (and the union disaffiliated from the Labour Party). “Save Rail” is a phrase that leaves a very bitter taste in the mouths of tens of thousands of former Railways workers.
    Prebble saved rail all right – he saved it for the transnationals and NZ Big Business asset strippers and profiteers who bought it for a song under the next Government and proceeded to reduce it to the anaemic creature that it is today.

    A blog on a documentary that went missing and caused angst and sacking for those involved ‘For the Public Good’. http://dimpost.wordpress.com/2011/03/07/bleg-2/
    on sale of public assets.

    • Murray Olsen 6.1

      I went to see Prebble and Lange at a Save the Rail rally in Auckland. Lange made a great speech about big rigs crowding the family Honda Civic off the road. I don’t think he believed a word he said. I think history has been far too kind to him.

      • greywarbler 6.1.1

        I think that his mo was to make interesting sweeping statements – caught peoples’ interest but really was a reagan-type populist figure.

  7. greywarbler 7

    I’m a bit green on some computer stuff and if someone else is also – to get Bill Rosenberg’s report in my comment above, highlight link and copy go into google and paste into header line on page and then the box to open the file will open for you to use.

  8. Rich 8

    It’s no good making a 10% return (taxable) if the price drops by 15%.

    “Dumb and Mad” investors, indeed.

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