What happened to PLCs and the stock exchange? - PART 1
A Two-Part post about who owns public transport, and why it matters
The never-ending debate on public (sector) v private (sector) has masked a quiet revolution in who actually owns bus and rail operators.
When I started in transport, the big names (First, Arriva, Go-Ahead, Stagecoach, National Express) were public companies listed on the London Stock Exchange. Today, only two are. The shift in ownership models over the past 25 years has been dramatic, and surprisingly under-discussed.
What does "public" mean?
In financeland, a "public" company is privately owned. Obviously.
It means a Public Limited Company (PLC) whose shares are sold on public stock exchanges (like the London Stock Exchange), even though all its investors are private. A Public Limited Company is distinct from either “public sector”, which refers to state-owned enterprises or a Limited Company, which is any other private company - including Freewheeling. The big privatisations of the 1980s (e.g. British Gas, with its famous "Tell Sid" campaign) involved public sector companies going public... (🤯)
Margaret Thatcher was a huge fan of the idea that ordinary members of the public could buy shares in firms. She felt a company would be more responsive to its customers if its customers were shareholders, not taxpayers.
One of the most famous TV ads of all time - encouraging the public to buy shares in the privatised British Gas
When the previous Conservative government left office in 1997, they left behind a world remade in their image, in which PLCs dominated the provision of public services. When we discussed nationalised versus privatised models in the 1990s, the only model envisaged for the private sector was the PLC.
Today, the world looks very different.
First Group and my former alma mater National Express (now renamed Mobico) are the only two operators to still have independent listings on the London Stock Exchange. Stagecoach no longer has its own listing but is part of Germany asset manager DWS, who are a public company listed in Frankfurt - but not a transport specialist.
Of the remaining big groups, Go Ahead is now owned by a bunch of pension funds, Transport UK is owned by its management and Arriva is owned by private equity.
Losing the listings
What are the consequences of private sector firms without public listings?
Well, at a very basic level, you can’t buy shares. If you want to own a bit of a public transport operator, better buy now (or become very rich!) as an increasing proportion of firms are not sold on public markets.
Is that a problem?
Well, Mrs Thatcher wouldn’t have liked it. But it does have some advantages.
When I worked for National Express, the focus on quarterly results was relentless. Why? Because listed companies are required to put out quarterly earnings statements and, on public markets, shares can be bought and sold instantly. A bad quarter’s results would indicate a problem, which would cause investors to sell their shares.
As a result, decision-making tended to be very short-term.
This is not inherent to the public markets. Startups like Amazon, Facebook and Google all spent most of their early, unprofitable years as PLCs, and were able to sell to public investors that their short-term losses were a deliberate long-term investment strategy. Public investors - at least in the US - clearly can understand the rationale of long-term investing. But the perception in the UK is that they can’t, so decisions are always made through a prism that each quarter’s results need to be better than the last.
Private companies do not need to publish quarterly earnings, so this problem is eliminated.
This also reduces transparency. If you want to know how a privately-owned firm is doing, you can try to figure it out from the information published at Companies House, but this is spartan. They may publish a longer version of the annual report, but they can pick ‘n’ mix what data they put into it. The comparability of a PLC annual report is lost. All the financial information will be being produced, but there’s no longer a need to share it with the public.
In Part 2, I’ll explore what this shift might mean for the future of our transport system.
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