PART 2: EXAMPLES UNDERLINING KEY LESSONS
FROM REPORTS BY THE COMMITTEE OF PUBLIC ACCOUNTS
12. General
Pre-sale Restructuring
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF GIROBANK[1]
i. In 1988 the Government decided to sell the
Post Office Girobank. The preferred bidder was a building society,
but the Department found that legislation was required to enable
a building society to buy Girobank and they underestimated the
amount of time this would take. They were not able to conclude
the sale until July 1990.
HOME OFFICE:
SALE OF
DTELS[2]
ii. In March 1994 the Home Office sold their
Directorate of Telecommunications (DTELS) for £6.5 million.
The Committee expressed surprise that, in October 1991, when DTELS
was being considered for privatisation, the Home Office entered
into a legally binding commitment to a 25-year lease on a new
headquarters building for DTELS which, in the event, was not required
by the new owners and so remained a charge on the Home Office.
In addition, of the £946,000 costs of relocating DTELS headquarters
operation to the new building, some £370,000 had not been
recovered by the time of the sale. The Committee strongly urged
that, where departments are considering selling a business or
part of their operation, they should carry out a risk analysis
of the likely costs and benefits to the taxpayer from a major
relocation, on a range of assumptions, including the possible
timing of the sale and the possibility that a new owner might
not require the premises. The Department accepted the importance
of taking possible future developments into account when deciding
on relocation.
UNITED KINGDOM
ATOMIC ENERGY
AUTHORITY: SALE
OF FACILITIES
SERVICES DIVISION[3]
iii. In March 1995 the Authority sold their
Facilities Services Division for £12 million. The Authority
argued that their advisers' costs of £2.2 million for restructuring
should not be set against the sale proceeds. We were not convinced,
since the purpose of the restructuring was to put the Division
in a form in which it could be sold. We noted however that the
Authority expected other benefits to accrue from the contracts
agreed at the time of the sale. We agreed that, where costs and
benefits can be estimated, it is right that they should be taken
into account in the evaluation of the outcome of the sale.
iv. A number of problems arose in this sale
because the Authority were setting up the Facilities Services
Division at the same time as it was being prepared for sale. They
should have allowed more time for this.
CABINET OFFICE:
SALE OF
THE STATIONERY
OFFICE[4]
v. In September 1996 the Office of Public Service
(part of the Cabinet Office) sold The Stationery Office for £54
million. A restructuring programme was carried out by Her Majesty's
Stationery Office (HMSO) before the sale which was supposed to
reduce overhead costs and improve the commercial focus of the
company. It resulted instead in a progressive loss of management
and financial control which contributed to a decline in bids during
the sale process (the successful bidders had offered £86
million at the indicative bidding stage). We concluded that the
Office of Public Service had failed to find out about the adverse
impact of the implementation of HMSO's restructuring programme
until it was too late to take remedial action. As vendors 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. We also criticised HMSO for not setting
budgets or recording the costs of the restructuring programme,
and the Office of Public Service for not insisting that these
were drawn up. We consider such budget setting is an integral
part of good management, providing an effective check on the upward
cost pressures which often arise, for example, because of unforseen
problems requiring changes to plans.
Sale Objectives
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF ROVER
GROUP PLC[5]
vi. In their report on this 1988 sale, our predecessors
noted that while it was not for them to question the merits of
the privatisation programme, they were concerned that the best
possible terms should be obtained for any public assets sold.
SCOTTISH OFFICE
INDUSTRY DEPARTMENT:
SALE OF
SCOTTISH POWER
AND HYDRO-ELECTRIC[6]
vii. In this 1991 sale our predecessors noted
that the Department did not identify any benchmarks or target
ranges, in terms either or numbers of shareholders or the duration
of shareholdings. Such quantification would have enabled the Department
to express more precisely their objective of increasing individual
share ownership and to establish more definitely the extent to
which they had achieved this objective. In the Committee's view
quantifying objectives in terms of benchmarks or ranges would
be a valuable discipline and provide departments with a clear
basis for measuring achievement.
viii. The Committee noted that, in the absence
of research after the sale, the Department did not know how many
individuals were new shareholders and how many were existing shareholders.
They recognised that the Department's interest in such information
was limited because they were not at the time planning any further
sales. Given the then Government's objective of increasing individual
share ownership however the Committee considered that there might
be advantage in conducting such research to identify the reasons
why individuals decided to buy, retain or sell their shares.
Timing of Sale
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF ROVER
GROUP PLC[7]
ix. Reporting on this 1988 sale, the Committee
recommended that Departments should not subject themselves to
time deadlines which render them vulnerable to last minute pressures
to sell at a lower price than that to which the negotiations were
tending. The Government agreed on the importance of not allowing
deadlines set to ensure the efficient conduct of business to constrain
their ability to pursue value for money for the taxpayer.
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF THE
TWELVE REGIONAL
ELECTRICITY COMPANIES[8]
x. The Department were under pressure to sell
the twelve electricity companies as the first major sale in their
privatisation of the electricity industry. The Committee recognised
the difficulties that would have been posed for the Department,
in relation to their overall objective of completing all the electricity
sales within the lifetime of the Parliament, if this first sale
had been postponed beyond December 1990.
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF NATIONAL
POWER AND
POWERGEN[9]
xi. In commenting on this second sale in the
series of three electricity privatisations, the Committee noted
that their examinations of this and previous sales had shown that
privatisation timetables could sometimes impose considerable pressures
on departments. The Committee expressed concerns that this pressure
to do things quickly should not be used as an excuse for uneconomic
arrangements and underlined the importance of departments organising
themselves and planning sufficiently far ahead. The Government
agreed with the importance of ensuring that deadlines set to ensure
the efficient conduct of a sale did not constrain the pursuit
of value for money for the taxpayer.
UNITED KINGDOM
ATOMIC ENERGY
AUTHORITY: SALE
OF FACILITIES
SERVICES DIVISION[10]
xii. In reporting on this 1993 sale we noted
the Authority's view that many of the problems that had occurred
in carrying out the sale arose because the Facilities Services
Division was being created at the same time as it was being sold.
We agreed with the Authority that they should have allowed more
time for this.
Method of Sale
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF GIROBANK[11]
xiii. In July 1990, the Government sold Girobank's
main business to the Alliance and Leicester Building Society for
£111.8 million. The Department's advisers recommended a trade
sale because, in their view, there were sufficient purchasers
to make for a genuine auction; a management buy-out was untenable
because it would need to borrow extensively and was likely to
be restricted in its role as a lender. Our predecessors noted
that Ministers decided to sell by trade sale because they considered
that a share floatation would have made Girobank vulnerable to
an early takeover; they concluded that a trade sale to a strong
financial institution would present fewer difficulties and would
give Girobank greater strength.
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF THE
BRITISH TECHNOLOGY
GROUP[12]
xiv. In March 1992, the Government sold the
British Technology Group for initial proceeds of £27.75 million
to a consortium led by the company's management and employees.
The Government were particularly concerned to find buyers who
would take a long term view, and not seek to break up the company
or otherwise threaten the continuation of the company's existing
business. They judged that the continuation of the business could
be put at risk if a single buyer was able to purchase the company
outright or to achieve a controlling interest. The Department
selected the management-led consortium as the preferred purchaser
in preference to a bid from an Anglo-American consortium who offered
£2.65 million more for the company. Our predecessors noted
that this was the price which the Department were prepared to
pay in support of their view that sale to a management-led consortium,
with the greater involvement of management and employees in the
success of the business, would offer a better prospect of a genuinely
independent future for the company.
NHS EXECUTIVE: DISPOSAL
OF SWIFT[13]
xv. The former South and West Regional Health
Authority sold SWift, their information technology agency to Electronic
Data Systems Limited, on 1 September 1995, by a service procurement
process in which bidders were asked to offer discounts on SWift's
software and physical assets. We noted that the Authority could
have sold SWift as a business in a competitive trade sale and
we were concerned that the Authority did not address directly
the value of SWift as a business. In our view the service procurement
exercise followed by the Authority carried a clear risk that full
value might not be achieved for the business opportunity being
sold. The Authority gave top priority to avoiding putting at risk
the continuity of services which supported clinical care. Without
ongoing contracts, there was a risk of selective withdrawal of
support or large price increases in specific areas. In response
the NHS Executive accepted that a trade sale which guaranteed
the same level of protection of services could have been an alternative
method of disposal.
Pre-sale Valuation
DEPARTMENT OF
TRANSPORT (NOW
DEPARTMENT OF
THE ENVIRONMENT,
TRANSPORT AND
THE REGIONS):
SALE OF
THE NATIONAL
BUS COMPANY[14]
xvi. In 1988 the Department sold the National
Bus Company. Our predecessors noted that important sale decisions
were not informed by valuations of the company on a deregulated
basis, as a single unit or otherwise. In reply the Department
said they had sought an estimate of the value of the company after
deregulation but had been advised that such a valuation would
be meaningless because the effects of deregulation and changes
in subsidy arrangements were so uncertain.
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF ROVER
GROUP PLC[15]
xvii. In August 1988 the Department sold the
Rover Group to British Aerospace. Our predecessors recommended
that, in future, before entering negotiations, the selling department
should make their own comprehensive valuation of the undertaking
to be sold. The Government agreed that it might be appropriate,
in some cases, to employ a benchmark or range of benchmarks in
assessing tender bids for example where competition had failed
to produce a wide enough range of acceptable purchasers to safeguard
value for money.
DEPARTMENT OF
THE ENVIRONMENT
(NOW DEPARTMENT
OF THE
ENVIRONMENT, TRANSPORT
AND THE
REGIONS): SALE
OF THE
WATER AUTHORITIES
IN ENGLAND
AND WALES[16]
xviii. In December 1989 all the Government shares
in the ten water companies of England and Wales were sold. Our
predecessors noted that the Department had not set any benchmarks
for what they were aiming to realise by the sales. They had calculated
"illustrative net proceeds" of £4.4 billion but
they told the Committee that these were not meant to imply that
this much money could actually be raised, and in the event it
was not, since final net proceeds were £3.6 billion.
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF BRITISH
TECHNOLOGY GROUP[17]
xix. In March 1992 the Department sold the British
Technology Group. Before doing so they obtained a valuation of
the firm's intellectual property rights in view of their importance
in this sale and of the prospect that the firm might be sold to
a management-led consortium. Our predecessors welcomed this.
DEPARTMENT OF
TRANSPORT (NOW
DEPARTMENT OF
THE ENVIRONMENT,
TRANSPORT AND
THE REGIONS):
SALE OF
LONDON TRANSPORT'S
BUS OPERATING
COMPANIES[18]
xx. Between September 1994 and January 1995
London Transport sold their ten bus operating companies for £233
million. The Department found it difficult to explain why these
proceeds so far exceeded the valuation of £112 million to
£154 million provided by BZW, London Transport's financial
advisers. The Committee expressed concern however that BZW's valuation
did not seek to estimate the likely proceeds from the sale, but
rather the proceeds below which the vendor should consider whether
or not to go ahead with initial bids for the companies. The Department
questioned the practicability of estimating likely proceeds accurately
and doubted whether such estimates would contribute to the vendor's
negotiating position.
DEPARTMENT OF
TRANSPORT (NOW
DEPARTMENT OF
THE ENVIRONMENT,
TRANSPORT AND
THE REGIONS):
BRITISH RAIL
MAINTENANCE LIMITED:
THE SALE
OF MAINTENANCE
DEPOTS[19]
xxi. Between April and June 1995 British Rail
sold seven maintenance depots. Recognising that assumptions' would
have had to be made about a number of aspects of the businesses,
we nevertheless expressed regret that the department had not ensured
that comprehensive valuations of the depots were carried out.
In reply, the Department accepted that benchmark valuations could
be an important aid to judgment as to whether the terms of a sale
offer value to the taxpayer, and undertook to be guided by the
Committee's view in any future consideration of the appropriateness
of valuations.
NHS EXECUTIVE: SALE
OF SWIFT[20]
xxii. In September 1995 the former South and
West Regional Health Authority sold their information technology
agency (SWift). We criticised the fact that the Authority had
not undertaken a pre-sale valuation and we expressed concern that
the estimated value of the disposal to the NHS (£3.1 million
to £5.1 million) fell below the range of value (£7.1
million to £11 million) indicated by a valuation commissioned
by the National Audit Office during their examination. In reply,
the NHS Executive accepted the need for valuation advice on the
business to be sold. The Treasury agreed that it is essential
for the vendor to have a clear understanding of the business to
be sold and to have taken advice on its potential value, including
when there is no market in comparable businesses or when a decision
has been taken to go ahead with the sale for the best price available.
They suggested that a judgement on what is or is not a realistic
price was best achieved by ensuring full competition and that
potential bidders had sufficient information to put a value on
the business opportunity.
The Appointment and Role of External Advisers
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF THE
MINING OPERATIONS
OF THE
BRITISH COAL
CORPORATION[21]
xxiii. Having invited firms to tender for the
provision of advice on preliminary work on the sale of British
Coal's mining interests, the Department then appointed their preferred
bidder, N M Rothschild & Sons Ltd., to advise on the whole
of the sale. Our predecessors were concerned that, since the potential
advisers shortlisted for the preliminary work had not been asked
to tender for the provision of advice for the whole sale, the
Department did not have details of what they each might have charged
for the full project. The Department agreed that full and open
competition should be applied wherever practicable. During the
interview stage of the tender process each of the advisers were
asked about their proposals for advising through to privatisation.
In subsequently negotiating fees, the Department had regard to
the fees for financial advisers in other sales to establish whether
NM Rothschild's proposed fee package was competitive.
OFFICE OF
PASSENGER RAIL
FRANCHISING (OPRAF): THE
AWARD OF
THE FIRST
THREE PASSENGER
RAIL FRANCHISES[22]
xxiv. OPRAF's financial and legal advisers for
the award of the first three passenger rail franchises in early
1996 together accounted for costs of almost £19 million between
1993 and 1996, and were appointed by OPRAF without competition.
Both firms had been appointed previously by the Department of
Transport following competitive tenders, and both were judged
by the department to be performing to a high standard and had
gained experience. Our predecessors, however, urged departments
to give careful consideration in such cases to the risk of their
becoming dependent on particular advisers, which could eventually
reduce competition and so put value for money to the taxpayer
at risk. OPRAF subsequently competitively re-tendered for their
legal and financial advisers.
UNITED KINGDOM
ATOMIC ENERGY
AUTHORITY: SALE
OF FACILITIES
SERVICES DIVISION[23]
xxv. In preparing for the 1993 sale of the Facilities
Services Division, the United Kingdom Atomic Energy Authority
(the Authority) let seven contracts with a total value of £4.4
million without competition to their principal adviser, Coopers
and Lybrand. Not only does competition generally lead to the best
value for money in the appointment of advisers, it also demonstrates
that appointments have been made in line with the proper conduct
of public business. In this case it would have helped demonstrate
that there was no potential conflict of interest—at the
time a former senior partner of Coopers and Lybrand was on the
Board of the Authority. The Authority recognised that their decision
to award the contracts to Coopers and Lybrand without competition
was difficult to justify. They accepted that the contract award
process should have been underpinned at an appropriate stage by
formal testing of other suppliers. For subsequent divestment/contractorisation
exercises the Authority selected all advisers on the basis of
competitive tendering.
xxvi. The Authority also underestimated the
costs of Binder Hamlyn, the reporting accountant, which at £709,000
were more than four times the Authority's budget of £161,000.
Binder Hamlyn were appointed through competition on what was expressed
to be a fixed price contract. The Authority recognised that they
should have made it clear in the specification of the work that
more work than normal was likely to be necessary. The Authority
accepted that they found it difficult to provide the quality and
quantity of information required and that this risk should have
been made clearer in the specification for the work.
CABINET OFFICE:
SALE OF
THE STATIONERY
OFFICE[24]
xxvii. In this sale we were not convinced that
the Office of Public Service (part of the Cabinet Office) obtained
full value for money from their financial advisers, Coopers and
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 and lybrand.
Completion and Success Fees
DEPARTMENT OF
THE ENVIRONMENT
(NOW DEPARTMENT
OF THE
ENVIRONMENT, TRANSPORT
AND THE
REGIONS): SALE
OF THE
WATER AUTHORITIES
IN ENGLAND
AND WALES[25]
xxviii. In the sale of the ten water companies
of England and Wales, our predecessors were concerned that additional
payments were made to advisers in circumstances where there was
no clear obligation on the Department of the Environment to do
so and no clear evidence to support the amount paid. The Department
noted the Committee's concerns but considered that the payments
reflected reasonable rewards for the successful completion of
the sale. They did not accept that the payments were not fully
justified.
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF THE
MINING OPERATIONS
OF THE
BRITISH COAL
CORPORATION[26]
xxix. Part of the remuneration payable to NM
Rothschild and Sons Ltd., as financial advisers for the sale of
British Coal's mining operations was a success fee, payable if
certain performance criteria were satisfied. Although a timetable
for the sale process had been agreed by the autumn of 1993, the
success criteria were not formally agreed until June 1994 by which
time two of the stages which had been used as the basis for the
success fee criteria had been completed. Our predecessors recommended
that any criteria that measure success should be set out preferably
before the appointment of the advisers and certainly before the
completion of the events to which they relate. The Department
accepted that performance criteria should be defined at the commencement
of a project wherever practicable.
DEPARTMENT OF
TRANSPORT (NOW
DEPARTMENT OF
THE ENVIRONMENT,
TRANSPORT AND
THE REGIONS):
SALE OF
LONDON TRANSPORT'S
BUS OPERATING
COMPANIES[27]
xxx. Between September 1994 and January 1995,
London Transport sold their ten bus operating companies for gross
proceeds of £233 million. The Department set the sale objectives,
gave London Transport guidance on the sale and approved each sale.
London Transport were advised by BZW. London Transport and BZW
agreed to use BZW's valuation of the companies as a reference
point for a success fee to be paid to BZW on completion of the
sales. London Transport and BZW subsequently negotiated a settlement
in respect of BZW's success fee because, in the event, proceeds
and consequently the amount of the success fee payable under the
arrangement agreed exceeded expectations. BZW's valuation had
been endorsed by the Department's own adviser (Price Waterhouse).
Our predecessors were concerned that neither the Department nor
their adviser was aware that the valuation would be used as a
reference point for a success fee. The Department noted the Committee's
concerns.
Setting and Monitoring Budgets for External Advisers
SCOTTISH OFFICE
INDUSTRY DEPARTMENT:
SALE OF
THE SCOTTISH
BUS GROUP[28]
xxxi. Costs in this sale turned out to be more
than twice the original estimate. Our predecessors were surprised
that the Scottish Office Industry Department did not draw up more
detailed figures at the outset so that they could monitor expenditure
trends more effectively. They should have reviewed the estimate
when it clearly became inadequate and they should have consulted
the Treasury again on this issue. The Department replied that
it was in control of the sale costs throughout the disposal process.
Costs were monitored on a monthly basis and the Department were
fully aware of the changing costs of the sale.
NORTHERN IRELAND
DEPARTMENT OF
ECONOMIC DEVELOPMENT:
THE PRIVATISATION
OF NORTHERN
IRELAND ELECTRICITY[29]
xxxii. The privatisation of Northern Ireland
Electricity (NIE) took place in two phases:
— in 1992, NIE's four generating stations
were sold to three private companies by means of trade sales;
and
— in 1993, the remainder of NIE was
floated on the London Stock Exchange.
While a cost budget was set for the flotation
of NIE none was established for the sale of the generating stations.
Our predecessors recommended adherence to Treasury guidance that
an overall budget is essential for effective monitoring and control
of privatisation costs. Our predecessors were also surprised that
two of the Department of Economic Development's principal advisers
were appointed without a cap being placed on their fees. The Department
accepted that it would have been preferable to have fixed a fees
cap.
OFFICE OF
PASSENGER RAIL
FRANCHISING (OPRAF): THE
AWARD OF
THE FIRST
THREE PASSENGER
RAIL FRANCHISES[30]
xxxiii. The Franchising Director did not set
a budget or an initial limit on advisers' fees for the award of
the first three franchises in early 1996 but instead subjected
these costs to monthly or bi-monthly reviews. Our predecessors
considered that cost control was likely to be assisted by a carefully
thought out budget from the start of an exercise, not least because
this would provide a reference point for evaluating, as the work
developed, any case for adjustment in the light of changed circumstances.
OPRAF accepted that their approach was not the normal one but
argued that rail franchising was a new and untried process. Based
on the experience of the first three sales, OPRAF introduced budgets
for advisers' costs in subsequent sales.
UNITED KINGDOM
ATOMIC ENERGY
AUTHORITY: SALE
OF FACILITIES
SERVICES DIVISION[31]
xxxiv. Sale costs in this 1993 privatisation
were 24 per cent higher than the Authority's estimate and restructuring
advisory costs were 16 per cent higher. The Authority attributed
this to lack of experience in preparing such budgets. Our predecessors
considered it very unsatisfactory that the Authority did not recognise
their lack of experience in these matters at the time they proposed
budgets and so take appropriate advice. The Authority have taken
the Committee's findings into account in subsequent divestment/contracting
out exercises for which specifications for external support have
been obtained and cost estimates met.
Clawback
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF ROVER
GROUP PLC[32]
xxxv. In August 1988 the Rover Group was sold
to British Aerospace for £150 million, after a cash injection
of £547 million in recognition of the company's debt and
to support its investment programme. Our predecessors recommended
that departments should identify assets which are surplus to the
needs of the main business and that such assets should be separately
valued; in the case of property sites these values should reflect
any higher figures appropriate to possible alternative uses to
which the land might be put. In situations where departments decide
not to dispose of surplus assets ahead of the main sale because,
for example, their future value is uncertain, they should protect
the taxpayer's interest by providing for clawback of gains arising
within a reasonable period subsequent to the privatisation.
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF THE
TWELVE REGIONAL
ELECTRICITY COMPANIES[33]
xxxvi. In December 1990, the Government sold
all its shares in the 12 regional electricity companies in England
and Wales. In pursuit of their objective to maximise proceeds
from the sales, the Department sought to secure from the companies
satisfactory forecasts of first year dividends, together with
statements about policies for future dividends, and business prospects,
which were as positive as possible. In the event, the pre-tax
profits for 1990-91 were 22 per cent (214 million) higher than
forecast. The Department had considered before the sale introducing
a clawback on profits which might have extended for some years
after flotation. But they decided not to do so because they had
been advised that this would have been highly detrimental to the
market's view of the companies. Our predecessors considered that
it would not have been unreasonable for the taxpayer to have shared
in the higher-than-expected profits for the first year; they would
not have expected such an arrangement to have affected investors'
perceptions of the companies' prospects in the long term.
DEPARTMENT OF
TRANSPORT (NOW
DEPARTMENT OF
THE ENVIRONMENT,
TRANSPORT AND
THE REGIONS):
PRIVATISATION OF
THE ROLLING
STOCK LEASING
COMPANIES[34]
xxxvii. In the 1996 privatisation of these three
companies the Department concluded that the timing of the sale
meant that they might not get good value. The Department had always
intended to sell the three companies to separate purchasers in
line with their objective to encourage competition in the market.
They therefore knew that they might not be able to sell all the
businesses to the highest bidder, as indeed proved to be the case.
All the companies were resold at a significant profit within two
years. We were concerned that the Department did not consider
carefully at an early stage in the sale process the case for taking
clawback provisions allowing the Government to share in the profits
made. We noted that bidders stated that they would not have been
deterred from bidding by clawback provisions, although there may
have been some impact on the prices bid. It should have been possible
to devise clawback provisions that only took effect after the
purchasers had achieved their expected level of profit, avoiding
a significant adverse impact on the prices.
Skills Required by the Vendor Department
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF AEA TECHNOLOGY[35]
xxxviii. In September 1996 the Department sold
their shares in AEA Technology by flotation for 280p each, raising
£224 million. We were surprised at the lack of experience
of the Department's team managing this sale and at their failure
to seek the Treasury's advice on key issues such as phasing and
allocation, particularly n view of the wealth of experience in
handling sales that there now is in the public sector and the
expertise that resides in the Treasury. We look to departments
to ensure that sales teams include individuals with relevant and
up to date sales experience.
The Role of the Treasury
DEPARTMENT OF
TRADE AND
INDUSTRY: SALE
OF ROVER
GROUP PLC[36]
xxxix. In their report on this 1988 sale, our
predecessors made a number of recommendations relating to the
conduct of privatisations including that the Treasury, in conjunction
with other interested departments, should draw up further guidance
on the best practices to be adopted and on matters to be borne
in mind for future privatisations. The Treasury agreed to consider
revising the existing guidance and drew attention to its substantial
and continuing role in advising departments on best privatisation
practice in the context of individual sales.
SCOTTISH OFFICE
INDUSTRY DEPARTMENT:
SALE OF
SCOTTISH POWER
AND HYDRO-ELECTRIC[37]
xl. In their report on this 1991 sale, our predecessors
considered that the lessons learned might be beneficial to other
departments engaged in privatisations. They looked to the Treasury
to ensure that such benefits were passed on. The department acknowledged
the benefits of the support and advice given to them by the Treasury
and other departments. The Treasury said that they continued to
ensure that lessons learned were constantly updated and made available
to other departments.
HM TREASURY: SECOND
SALE OF
SHARES IN
NATIONAL POWER
AND POWERGEN[38]
xli. In this March 1995 sale, the Treasury sold
the Government's remaining shares in National Power and PowerGen
for proceeds of £3,594. Our predecessors recognised that
the Treasury had learned lessons from previous sales and used
an experienced team, persuading external advisers to help them
devise a series of technical innovations in the sale which saved
money and resulted in better prices for the taxpayer.
Extracting Cash
DEPARTMENT OF
TRANSPORT (NOW
DEPARTMENT OF
THE ENVIRONMENT,
TRANSPORT AND
THE REGIONS):
BRITISH RAIL
MAINTENANCE LIMITED:
THE SALE
OF MAINTENANCE
DEPOTS[39]
xlii. The Committee regretted that the Department
did not inform themselves about the expected financial performance
of the businesses to be sold, and whether British Rail were taking
adequate steps to secure value for the large cash balances which
featured in the businesses being sold. They recommended that,
where departments have responsibilities in relation to sales,
they ensure that key financial information about the business
is obtained by the vendor including financial prospects and cash
flow profiles, and that the vendor ensures that full value is
achieved for cash.
1 53rd Report 1992-93 HC 589 Treasury Minute Cm 2354 Back
2
28th Report 1995-96 HC 151; and Treasury Minute Cm 3379 Back
3
15th Report 1997-98 HC 418; and Treasury Minute Cm 3936 Back
4
49th Report 1997-98 HC 599 Back
5
1st Report 1991-92 HC 51 Back
6
42nd Report 1992-93 HC 509; and Treasury Minute Cm 2354 Back
7
1st Report 1991-92 HC 51 Treasury Minute Cm 1819 Back
8
16th Report 1992-93 HC 101 Back
9
32nd Report 1992-93 HC 298; and Treasury Minute Cm 2279 Back
10
15th Report 1997-98 HC 418 Treasury Minute Cm 3936 Back
11
53rd Report 1992-93 HC 589; and Treasury Minute Cm 2354 Back
12
32nd Report 1993-94 HC 273; and Treasury Minute Cm 2677 Back
13
3rd Report 1997-98 HC 368; and Treasury Minute Cm 3880 Back
14
9th Report 1990-91 HC 119 Treasury Minute Cm 1582 Back
15
1st Report 1991-92 HC 51; and Treasury Minute Cm 1819 Back
16
7th Report 1992-93 HC 140 Back
17
32nd Report 1993-94 HC 273 Back
18
32nd Report 1995-96 HC 251; and Treasury Minute Cm 3384 Back
19
22nd Report 1996-97 HC 168; and Treasury Minute Cm 3714 Back
20
3rd Report 1997-98 HC 368; and Treasury Minute Cm 3880 Back
21
3rd Report 1996-97 HC 60; and Treasury Minute Cm 3359 Back
22
15th Report 1996-97 HC 39; and Treasury Minute Cm 3714 Back
23
15th Report 1997-98 HC 418; and Treasury Minute Cm 3936 Back
24
49th Report 1997-98 HC 599 Back
25
7th Report 1992-93 HC 140; and Treasury Minute Cm 2074 Back
26
3rd Report 1996-97 HC 60; and Treasury Minute Cm 3359 Back
27
32nd Report 1995-96 HC 251; and Treasury Minute Cm 3384 Back
28
21st Report 1993-94 HC 97; and Treasury Minute Cm 2602 Back
29
16th Report 1994-95 HC 24; and Memorandum Cm 2988 Back
30
15th Report 1996-97 HC 39; and Treasury Minute Cm 3714 Back
31
15th Report 1997-98 HC 418; and Treasury Minute Cm 3936 Back
32
1st Report 1991-92 HC 51 Back
33
16th Report 1992-93 HC 101; and Treasury Minute Cm 2145 Back
34
65th Report 1997-98 HC 782 Back
35
60th Report 1997-98 HC 749 Back
36
1st Report 1991-92 HC 51; and Treasury Minute Cm 1819 Back
37
42nd Report 1992-93 HC 509; and Treasury Minute Cm 2354 Back
38
13th Report 1996-97 HC 151 Back
39
22nd Report 1996-97 HC 168 Back
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