THE SALE OF THE STATIONERY OFFICE
INTRODUCTION
AND
SUMMARY
OF
CONCLUSIONS
AND
RECOMMENDATIONS
1. In September 1996 the Office of Public Service
(part of the Cabinet Office) sold The Stationery Office to the
National Publishing Group for £54 million. This was £17
million lower than the most pessimistic pre-sale valuation of
£71 million and only £7 million above the Office of
Public Service's reserve price of £47 million. £50 million
of the purchase consideration was used to repay debt owed to the
National Loans Fund.
2. A restructuring programme, undertaken by Her Majesty's
Stationery Office (HMSO) [1]
before the sale had been agreed, was supposed to reduce overhead
costs and improve the commercial focus of the business. It resulted,
instead, in a progressive loss of management and financial control.
This contributed to a decline in bids during the sale process.
Final offers ranged from £6 million to £86 million compared
with £25 million to £170 million at indicative bid stage.
The National Publishing Group subsequently reduced their offer
of £86 million to £54 million.
3. In the final days before the business was sold,
HMSO approached its £50 million statutory borrowing
limit with the National Loans Fund. The Office of Public Service
therefore decided that the business should stop paying suppliers.
To compensate the National Publishing Group, who would have to
pay the outstanding invoices after sale, the Office of Public
Service agreed to let them keep cash balances amounting to £3.8
million in the business at the point of sale.
4. On the basis of a report by the Comptroller and
Auditor General, the Committee examined the Office of Public Service
on their oversight of the business, their management of the sale,
the value for money achieved, and the impact of the restructuring
programme. Three key lessons stand out from this sale:
- Responsibility of the Office of Public Service
Although the Office of Public
Service were responsible for advising Ministers on HMSO's finances
and business plans, they decided that they would only advise Ministers
about the business if asked. After Ministers decided in January
1995 that HMSO should be privatised, the Office of Public Service
maintained their hands-off approach until the start of the sale
process. We consider that the Office of Public Service should
have taken a closer interest in this publicly-owned business for
which their Ministers were responsible.
The Office of Public Service
knew that the then Chief Executive of HMSO was to retire in July
1995 but they did not attempt to find a replacement with the qualifications,
experience and proven ability to manage the company through the
transition to the private sector. We consider that this omission
also reflects a serious lack of grip on the part of the Office
of Public Service.
- Managing the sale process
It was contrary to good practice
for the Office of Public Service not to monitor closely the actions
of management and the performance of the business during the sale
process, and to take on trust that HMSO management would run the
business competently during this period. The Office of Public
Service only discovered in January 1996, some three months after
the start of the sale process, that the business was in serious
difficulties.
5. Our detailed conclusions and recommendations are:
On the role of the Office of Public Service
(i) Although HMSO had
a separate Accounting Officer, the Office of Public Service received,
under a framework agreement, HMSO's corporate and business plans,
its targets, annual accounts and periodic business reports, and
were responsible for advising Ministers on the business. The Office
of Public Service took a hands-off approach to the business, however,
and chose to limit their role to providing advice to Ministers
only if requested. In the light of HMSO's increasing commercial
problems, we consider that the Office of Public Service should
have taken an active interest in the business and should have
taken the initiative, in defence of the taxpayer's interest, to
advise Ministers about the need for action to help performance.
Not doing so contributed to a loss of value in the sale (paragraph 20).
(ii) We do not accept the Office of Public Service's
view that the provision of advice to Ministers about the decision
to sell was the responsibility of the Chief Executive of HMSO
because he was the Accounting Officer. It is contrary to good
practice to leave it to the management of a business which is
to be sold to take the lead in advising on a decision to sell.
We view the distinction drawn by the Office of Public Service
between their Accounting Officer responsibilities and those of
the Chief Executive of HMSO as unconvincing, obscuring their responsibility
as vendor (paragraph 21).
(iii) The Office of Public Service had a key
role to play in safeguarding HMSO after January 1995 when Ministers
decided that the business should be sold. They abdicated this
responsibility by continuing to take a hands-off approach to HMSO
even though they knew that they would become the vendors
of the business when the sale was announced (paragraph 22).
(iv) This failure to take a close interest in
HMSO was exacerbated after September 1995 when Ministers announced
their decision to sell the business because the Office of Public
Service took some time to start to get to grips with their vendor
responsibilities. As a result it was not until early 1996 that
they realised that HMSO was in serious difficulties (paragraph
23).
(v) Although the Office of Public Service knew
that the Chief Executive of HMSO was due to retire in July 1995
they took no action to plan for the effective future management
of the business. Instead, just before the Chief Executive retired,
they advised Ministers to appoint a successor from within HMSO,
in an acting capacity. This was because they believed that uncertainty
about how the business would be sold meant that they would not
be able to attract a high calibre replacement. It is good commercial
practice, however, to secure a high calibre manager on suitable
terms to see the sale process through. We find it inexplicable
that the Office of Public Service did not explore the possibility
of attracting a new Chief Executive to HMSO on that basis (paragraph
24).
(vi) HMSO had provision for up to three non-executive
directors, but positions were allowed to remain vacant after July
1995. Individuals with commercial experience to draw upon could
have seen how badly HMSO was being run and could have alerted
the management and the Office of Public Service to the risks.
We note the Office of Public Service's admission that with hindsight
they should have tried harder to secure such appointments (paragraph
25).
On managing the sale process
(vii) At an early stage
in the sale bidders had been concerned about the quality of the
information coming from the business. In the final stages of the
sale the National Publishing Group reduced their bid by £32
million, from £86 million to £54 million in part
because of doubts about HMSO's financial position. We do not therefore
accept the Office of Public Service's view that the impact of
the loss of financial control in the run up to the sale was a
relatively minor factor in the progressive decline in bids (paragraph
46).
(viii) We note the Office of Public Service's
view that the sale represented value for money. We criticise them,
however, for not taking into account all the costs and liabilities
associated with the sale when considering whether or not to proceed
with it. We note that the £54 million sale price was very
close to the reserve price of £47 million, below which the
Office of Public Service would not have been prepared to sell.
Even at best, on the evidence given to us by the Office of Public
Service, the total receipts from the sale only exceed the reserve
price by around £3.8 million. When those liabilities
which are at present unquantifiable are taken into account for
example employee liabilities, it is unclear whether the sale represented
value for money (paragraph 47).
(ix) The Office of Public Service and their
financial advisers, Coopers & Lybrand, gave bidders over-optimistic
forecasts of HMSO's future performance. These forecasts were drawn
from HMSO's business plan which they knew was over-optimistic.
The HMSO forecasts, on which the Information Memorandum[2]
data were based, were overestimated and the Office of Public Service
failed to persuade HMSO to give them realistic figures. Treasury
guidance advises departments that business plans should not be
over-optimistic and open to misinterpretation. The Office of Public
Service only fully realised HMSO's true position when there were
a limited number of bidders left in the competition. The Office
of Public Service's negotiating position was weakened as a consequence
(paragraph 48).
(x) It is a measure of the failure of the Office
of Public Service that they did not have sufficient understanding
of the business to establish that HMSO would be forced to suspend
payments to creditors, resulting in their having to reverse the
arrangement made only ten days earlier with the purchasers that
the Office of Public Service would retain cash balances in the
business (paragraph 49).
(xi) We are also concerned that the Office of
Public Service paid £300,000 to three unsuccessful bidders
to keep them in the sale process, but were unable to prevent the
National Publishing Group having a two month exclusivity period
as preferred bidder. During this period the National Publishing
Group secured a £32 million reduction in their final bid
price of £86 million (paragraph 50).
(xii) We are not convinced that the Office of
Public Service obtained full value for money from their financial
advisers, Coopers & Lybrand. Two key documents prepared by
the firm—the valuation of the business (upon which the Office
of Public Service judged whether the sale represented value for
money) and the Information Memorandum (upon which inflated initial
bids were submitted)—were based on over-optimistic information
from HMSO management which was not subject to effective challenge
by Coopers & Lybrand.
(paragraph 51).
On HMSO's restructuring
(xiii) The Office of
Public Service failed to find out about the adverse impact of
the implementation of HMSO's restructuring programme on its accounting
systems until it was too late to take remedial action. As vendor
they should, in our view, have taken a close interest in how the
restructuring programme was being progressed because such an activity
can have important consequences for the effective operation of
a business and its appeal to bidders (paragraph 60).
(xiv) A vendor should know the costs and benefits
of any restructuring proposals. We are critical of HMSO's management
for not setting budgets or recording the costs of the restructuring
programme, and the Office of Public Service for not insisting
that they were drawn up. We consider that setting a budget for
such an exercise is an integral part of good management, providing
an effective check upon upward cost pressures which often arise,
for example, because of unforeseen problems requiring changes
to plans (paragraph 61).
1 The Stationery Office was the organisation established
to take over most of the business of HMSO. Back
2 The
formal offer document which included key financial and other information
about HMSO. Back
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