Sensitive to criticism about selling the family silver too cheaply, the government has consistently priced privatisations aggressively, leaving little on the table for those on the other side of the transaction.
The sale of 10 state companies, either by flotations or trade sales, has raised more than €8.3bn for the exchequer since 1991, according to Dónal Palcic and Eoin Reeves from the University of Limerick. Their figures do not take account of the disposal of a 25% stake in Permanent TSB in 2015, which added €400m to the state’s coffers.
For investors, Permanent TSB was one of the least successful privatisations. They paid €4.50 a share to buy a 25% stake in 2015 only to see the price slide as low as €1.80 by last summer.
Greencore, the former Irish Sugar, blazed a trail for privatisation in 1991 when the state floated an initial 55% stake at IR£2.30 a share. Governance scandals followed but they failed to spook the market and the state was able to place its remaining shares at IR£2.65 in 1992 and IR£2.75 the following year.
Questions about the sugar processor’s direction then weighed on the shares. When financier Dermot Desmond began to circle in 2000, he was able to assemble some of his stake for less than the IR£2.30 flotation price. Patient investors were rewarded but only after Greencore had reinvented itself as Europe’s largest sandwich maker.
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Shareholders in Irish Life did not have to wait as long. They paid IR£1.60 or €2.03 a share when a majority stake in the state’s insurance company was floated in 1991. Subsequent placings resulted in the disposal of the remainder of the state’s holding at IR£1.90 in 1993 and IR£2.15 in 1995. When Irish Life agreed to merge with the former building society Irish Permanent in 1999, the transaction valued its shares at about €8.60 — a fourfold gain for those who invested at the 1991 floatation.
The privatisation of Eircom the same year was a disastrous experiment in a mass shareholder democracy. Almost 500,000 members of the public subscribed at €3.90 a share, a frothy valuation in tune with a bubble in tech and telecoms . Over time their investment has been
transformed into a mix of cash and shares in Vodafone as Eircom was dismembered and sold on. Yet 18 years later, its former shareholders are still nowhere near breaking even.
The government was more cautious when Aer Lingus was privatised in 2006. The national carrier was sold at €2.20 a share and the price rose sharply when Ryanair launched a hostile takeover bid within weeks at €2.80 a share. When this failed, the price began to founder and by the following year Aer Lingus was trading below the flotation price. It was acquired in 2015 by the parent company of British Airways for €2.55 a share.
If these transactions were disappointing for investors, the exchequer also lost out by selling state companies on the stock market, according to Palcic and Reeves. They calculated that the state lost almost €843m on four flotations — Greencore, Irish Life, Eircom and Aer Lingus — by setting the offer price low enough to ensure the shares received a bounce on the first day of trading. “This equates to just over 16% of the proceeds raised from share issue privatisations and almost 10.1% of the total proceeds from the entire Irish privatisation programme — a substantial loss of revenue to the exchequer,” they state.