Getting the Job Done: British Petroleum Privatization
Goldman Sachs is retained as US advisor in the privatization of the UK government’s remaining interest in British Petroleum Company plc, the largest sale ever by HM Treasury. When it coincides with the 1987 “Black Monday” stock market crash, Goldman Sachs absorbs the largest loss the firm has ever taken.
During the 1980s, Goldman Sachs played a key role in the United Kingdom during a time of widespread privatization under the leadership of Prime Minister Margaret Thatcher. As early as 1977, Goldman Sachs was an underwriter of the US tranche of British Petroleum Company plc (BP)’s privatization. In 1987, the firm advised BP in its acquisition of Standard Oil Co. in Cleveland, which would become the basis for BP America. That same year, Goldman Sachs acted as lead underwriter in the US for the sale of the UK government’s remaining 31.5 percent stake in BP. In combination with new shares BP sought to issue, the offering would total more than GBP7.25 billion (more than US$12 billion dollars at the prevailing exchange rate).
The offering was planned for Friday, October 30, 1987— but then the unexpected “Black Monday” happened on October 19, triggering a week during which markets around the globe plummeted. The market drop had a direct and negative impact on the BP offering owing to differences in British and US underwriting standards—a share price had already been agreed upon prior to Black Monday, leaving Goldman Sachs and other underwriters of the deal facing massive losses.
Several firms, Goldman Sachs included, sought to persuade the British government to trigger a “force majeure” clause that would allow the offering to be suspended until normal market conditions returned. After the banks’ case was rejected by Chancellor of the Exchequer Nigel Lawson, Goldman Sachs made the decision, rather than attempting to extricate itself from the deal, to move forward—and absorb the largest underwriting loss the firm had ever taken.
The firm’s resolve to not only assume this loss but also to continue to seek participation in future UK privatization deals led to its growing status as a leading advisor and banker to British government and industry in the years to come.