Margaret Thatcher's proper historical role at this stage was that of a scenic engineer, setting the stage for the financial-services industry in London to be loosened from its rather geriatric system; where the merchant banks controlled this and the brokers controlled that and we didn't talk to 'him' without talking to 'him' first . She loosened all that. A construct that effectively waved in the entrepreneurials, unchallenged.
London then experienced a revolution. The effect of the Big
Bang or the liberalisation of the London Stock Exchange, now created a launch
pad for some of Lower Manhattan's wrestless power brokers. The first big deal
was the privatisation of BT. The highly successful second issue was brokered by
Eric Dobkin of Goldman Sachs.
So whilst Thatcher had fitfully paved the path, the body traffic was all Goldman Sachs. Men like Michael Coles and Eric Dobkin, not Margaret Thatcher, created the concept of equity capital markets in 1984/85 in the UK. A concept that was, up until this point, a purely north American phenomenon. It was so easy because European capital markets at that time simply didn't exist. Most offerings were via rights issues. There was no marketing expertise at all in the selling of equity and the only leverage you had was to offer current shareholders enough of a discount to subscribe for more.
This was a monumental opportunity that a company like Goldman Sachs would never allow itself to overlook. To go over to the UK and capture the moment. Like an errant parent buying love with sweets, Goldman Sachs were selling and Thatcher was eager to buy. With the success of the BT privatisation, the American power brokers had the strength and the leverage to take on more privatisations. Many more. With their research and trading prowess, their marketing prowess, they managed a staggering series of multi-billion-dollar deals with the UK Government throughout the 1970s and 1980s.
Naturally, as the progenitors of the concept, Goldman Sachs won the mandate to act as the lead manager for the next privatisation of British Gas. Goldman's precision performance here, a re-hash of their tried and tested marketing road--show process. At the end of the routine the brokers would simply report their recommended price for the share offering to the UK Government.
And here comes the clever clever part.
What Goldman's didn't know when they often arrived at the UK Government's offices, is that the price had pretty much already been agreed and debated with the UK underwriters, underwriting the lion's share of the transaction. The price agreed was, let's say, 120 pence.
On the strength of the presentation that Goldman's had made, they often convinced the government to go back to the UK underwriters, which had never been done before, and tell them that the price was going to be 125 pence. And the reason that they had the confidence to underwrite at 125 pence was that unbeknown to the public, Goldman's had committed a billion dollars to making sure that the share would trade right -- that Goldman's would use their own capital to make darn sure that this stock traded in the right sort of way. And if it came under any selling pressure, that Goldman's would be there to absorb shares and replace them.
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