British Petroleum Company, Ltd.
Case Study
British Petroleum Company, Ltd.
(1987 Stock Offering)
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Case Background
Formed in 1909, British Petroleum (“BP”) was the world’s seventh largest industrial company and the third largest oil company based on 1986 sales figures. As a part of its decentralization plan which prepares for the privatization of the nationalized industries, the British Government initiated a sale of BP’s stock in March 1987. Later on BP announced an offering of new stock in conjunction with the government sale in July 1987. Underwriting agreement was made between BP and both the domestic and international underwriters on 15 Oct 1987.
The offering date was set for 30 Oct 1987. The price for both the fixed-price offer and the international offer was set at ￡3.30 payable in three installments. While the first installment of ￡1.20 was due immediately upon sale, the second and third installment of ￡1.05 were due on 30 Aug 1988 and 27 April 1989 respectively.
Right after the underwriting agreement was made, the stock market suffered its largest decline in history. The underwriters of the BP issue faced substantial losses as a result of the drop in BP price. Refusing to rescind the deal, the British government announced on 29 Oct 1987 that the offering would proceed as planned, and the Bank of England would offer a repurchase plan for the underwriters. The bank would buy for ￡0.7 any and all partly paid BP shares that would begin trading the following day. Those who sold their shares to the bank would then be
British Petroleum Company, Ltd.
(1987 Stock Offering)
| | | |
| | | |
| | | |
| | | |
Case Background
Formed in 1909, British Petroleum (“BP”) was the world’s seventh largest industrial company and the third largest oil company based on 1986 sales figures. As a part of its decentralization plan which prepares for the privatization of the nationalized industries, the British Government initiated a sale of BP’s stock in March 1987. Later on BP announced an offering of new stock in conjunction with the government sale in July 1987. Underwriting agreement was made between BP and both the domestic and international underwriters on 15 Oct 1987.
The offering date was set for 30 Oct 1987. The price for both the fixed-price offer and the international offer was set at ￡3.30 payable in three installments. While the first installment of ￡1.20 was due immediately upon sale, the second and third installment of ￡1.05 were due on 30 Aug 1988 and 27 April 1989 respectively.
Right after the underwriting agreement was made, the stock market suffered its largest decline in history. The underwriters of the BP issue faced substantial losses as a result of the drop in BP price. Refusing to rescind the deal, the British government announced on 29 Oct 1987 that the offering would proceed as planned, and the Bank of England would offer a repurchase plan for the underwriters. The bank would buy for ￡0.7 any and all partly paid BP shares that would begin trading the following day. Those who sold their shares to the bank would then be