In the City
Stags at risk
Tony Rudd
Those who apply themselves and their funds to the business of making money out of short-term dealing in new issues have traditionally been called 'stags' and last week they were out in force applying for massive quantities of the Cable & Wireless issue. The phenomenon of 'stagging' is common to several markets. It is almost a way of life in Hong Kong and Singapore, when, that is, those markets are going up, which they are not at the moment. In London it's a traditional occupation in a bull market but not, usually, in a bear market which, again, this is. So there had to be something extra to explain the mass of enthusiasm shown for Cable & Wireless.
The reasons were severalfold. First there is currently very little else for anybody to do. The level of activity in the stock market is critically low. Some brokers report not having been as idle since the worst days of 1974; others even say that the present inactivity beats anything they knew then. Doubtless this enforced unemployment will Pass but while it lasts it is extremely trying to all concerned. So when something comes along which can generate enthusiasm and activity, the combination resulting in commission-earning turnover, everybody gets down to the task with a will.
Secondly the company concerned, Cable & Wireless, is a collectors' item. It has to be on every fund manager's list, just like his holding of GEC and, more recently, British Aerospace. The company is unique, representing a substantial slice of the world's cable and telecommunications systems and has only come onto the market as a result of this government's determination to 'privatise' such interests in national ownership as lend themselves readily to the exercise. Cable & Wireless certainly does that.
The result was that the offer of just over 133 million ordinary shares of 50p each (just under half the company) at 168p per share was heavily oversubscribed. The prospectus came in the form of a 50 page document, 26 pages of which represented the narrative of the company and the balance the figures. It is doubtful whether a high Proportion of those applying for the shares actually read the document, which is a pity because it was beautifully put together and represents the best in that archaic art form, Prospectus literature. The only criticism, Which nobody made, which is however apPropriate, is that the blue-blooded trio of Merchant banks, Kleinworts, Barings and Schroders, who put the whole thing together and handled the offer obviously gave the design of the document (in particular the cover) to a designer more used to Producing catalogues for Cork Street galleries than for city documents (the blue cover carried an 'art nouveau' device which presumably represented the Goonhilly Station at night). The terms of the offer were hardly generous. The shares yield a slim 5.6 per cent on the basis of the dividends that the directors would have declared in a full year; and the price earnings multiple, which is the yardstick all the professionals use, is a hefty 13.4, again on prospective earnings for the current year rather than historic earnings for last year. So by no manner of means can the issue be called cheap. And on top of this the current market conditions look precarious. Day-to-day volume is extremely low and the general expectation is for a fall in prices rather than a rise. None the less, because of the quality of the issue and the circumstances, the stags went in for it.
Even so the response was not entirely smooth. It began with enormous enthusiasm. The prospectus, a full six pages of advertisement, was published in the newspapers on the Monday. For the stags the practical problem was getting hold of a sufficient number of forms of application. They took the view (probably right) that in the allocation of the issue the small applicants would be favoured. So the logical thing to do was to put in as many applications for 100 shares as possible. This was on the assumption that the issue would be oversubscribed, perhaps tenfold, and the larger applications would be scaled down much more than the smaller ones. The number of prospectuses published by the sponsors of the issue was limited (being documents with the whole 50 pages of details). So, those needing plenty of application forms went for the newspaper advertisements for the Monday. A certain broking firm, which shall be nameless, actually ordered 30,000 copies of a leading national newspaper in order to satisfy their requirements for forms. Others did likewise though, presumably, on a smaller scale. Whole armies of clerks were put to work filling these out along with the attendant cheques and doubtless putting in the names of applicants along the lines of Tom, Dick and Harry so that the forms would not rank as 'multiple applications' and be rejected on that account.
On the morning of Friday 30 October, when the lists opened and closed at the receiving bankers, The National Westminster at Drapers Gardens, the counters were open to the public from 8.00 in the morning. At 8.30 am there were small numbers of people milling around. The clerk informed us that most of the major applications had been in the night before. However by nine o'clock the place was in uproar with innumerable applications being tossed over the counter. By 9.50 all was quiet again and there was no last-minute rush. Judging by these indicators the issue has probably been a success but not an overwhelming one.
The outcome of course will depend upon the aftermarket. This in turn hangs on the degree to which institutions will want to make up their holdings. Probably they can be relied upon to do so. And if they do, it will be another major public issue successfully tucked away in the London capital market, a tribute to all concerned. However, it is an extraordinary way of doing business. London could take a leaf out of New York's book on how to organise the whole thing. But that's for another week.
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