Ringing the changes on BT
The wave of privatizations over the last 15 years has spawned new types of legal structure - and specialist lawyers to apply them. By Christopher Stoakes.
Privatization in the 1980s was characterized by the initial public offering (IPO) with a simultaneous listing on several stock exchanges worldwide. The privatization of British Telecommunications (BT) in 1984 was held up as the classic IPO.
Privatization in the 1990s has broadened, with a wider array of legal techniques employed. Two variants are the trade sale and the voucher scheme. The trade sale suits the disposal of well-established state-owned entities which are sufficiently small and specialist not to merit an IPO. It is characteristic of the second wave of privatizations in the west. The voucher scheme is used in developing markets such as central and eastern Europe where there is an insufficiently developed market economy to make an IPO possible.
Lawyers play a crucial role in establishing the structure best suited to avoiding possible conflicts with the privatizing state's policy objectives. The state's reasons for privatizing may include raising money for the government, attracting new investment into the sector, introducing profit motivation into business as a matter of principle and increasing consumer benefit through competition.
These objectives can conflict. "For example, if you introduce competition into a sector, you may reduce what a buyer will pay for what was a monopoly," says Patrick Wallace, a partner at Freshfields, a leading law firm for privatizations internationally.