guinness beer goes public! -- 1/5/21

Today's selection -- from The Sixth Great Power: A History of One of the Greatest of All Banking Families, The House of Barings, 1762-1929 by Philip Ziegler. In 1886, the Baring Brothers took the Guinness family beer business public on London’s stock exchange. It created a frenzy. There was twenty times as much demand as there were shares available to sell:

"In 1886 Sir Edward Guinness, whose family had been brewing their dark brown liquid since the mid-eighteenth century, decided to float the business as a public company. According to Lord Rothschild, the business was first offered to his house and turned down. 'When I agree to any pro­posal, I am immediately filled with anxiety,' he told Frank Harris. 'To say "Yes" is like putting your finger in a machine -- the whirring wheels may drag your whole body in after the finger.' Revelstoke was the last man to suffer from such exaggerated timidity. He at once told Guinness that Barings would be happy to undertake the flota­tion. 'I think Guinness ought surely to yield profit to Baring Brothers and Co.,' wrote Thomas Baring from New York. He agreed it would be absurd to place any of the shares on the American market; Lon­don could easily find the money.

"Six million pounds' worth of preference and ordinary shares and debenture stock were to be issued, of which the Guinness family elected to keep £800,000. That left £5.2 million, to satisfy what it was clear was going to be a very substantial public demand. Applications were invited for Saturday morning October and extra policemen were brought in to be on hand in case the traffic proved unusually heavy. Nothing prepared Barings for the frenzied tumult that in fact ensued. 'Barings' place was literally besieged,' reported the Daily News. 'Special policemen kept back the pushing crowd of clerks, agents, messengers and City men, and pains were taken to have one of the swing doors only partly open, so that none but spectral clerks and Stock Exchange men of the Cassius cut could squeeze in.' Frank Harris wrote that some resourceful applicants wrapped their forms around stones and flung them through the windows. The Times reported that applications were said to total somewhere between £60 million and £130 million: 'We have good reason for believing that the latter figure is the more nearly correct of the two.' They were well informed: the actual figure was £114 million. By Monday morning the £10 ordinary shares were changing hands at £16 10/-, the preference shares at £13 10/-.

"With people wanting twenty times as many shares as were available, it was obvious Barings would have to apply some kind of rationing. 'It is doubtful whether Messrs Baring have any discretion­ary powers at all ... ,' 'Q' wrote to The Times. 'Once they allow that they have such power, then they may, if they like, allot the whole of the shares to themselves. I imagine their duty is to divide the shares pro rata to the applicants ... It has been too much the custom to con­sider that shares may be given away at the sweet will of the issuer.' 'Q' must already have suspected what was indeed the truth, that the sweet will of Barings had been paramount in the allotment of the shares. Of the £4.5 million ordinary and preference shares, where the largest profit was to be found, Barings kept something over £800,000 for themselves. The individual partners took a further slice: £70,000 for T. C. Baring, £20,000 for Thomas Baring. There was an allocation for family and friends outside the house: Lord and Lady Ashburton got £35,000 between them, Lt-Gen. Baring £10,000, Colonel Baring £2000, Lord Rosebery £40,000. Favoured merchant banks and stockbrokers got handsome helpings: Glyn Mills took £250,000; Hambros £105,000; Morgans £100,000; Rothschilds £350,000 -- according to the Morning Advertiser, in exchange for a large share in a new Chilean loan. Little over a quarter of the shares was available to the general public.

"There was nothing illegal in what Barings did. By the standards of the day their behaviour can hardly even be described as immoral. Lord Rothschild -- more in admiration than disapproval -- said that they had made £1 million profit on the affair. This figure is too high, but the total benefit to the house and individual partners was enormous, probably in excess of £500,000. Their defence would have been that flotations were risky businesses; that when they went badly they accepted their responsibility to maintain the price by holding stock and, if necessary, buying it back when it came on to the market; and it was therefore only fair that they should get a share of the takings if things went well. The defence was not unreasonable, the Financial News was doing them less than justice when it wrote that it was convinced 'that if the floating of this company had been no great success the general public would have been favoured with a full allotment and thus have been obliged to hold the baby for all time to come'. The question was, how big a profit was reasonable compensation for the risk? That Barings felt somewhat ashamed of their performance on this occasion was indicated by their reluctance to release the original list of subscribers. Instead, they published the names of those who held shares on 1 March 1887, and the original allocations were released only after they had appeared in consider­able detail in the press.

"The newspapers and public had no doubt that Barings had been guilty of something approaching sharp practice. Money accused them of 'a career of shabby evasion and (in the moral if not in the legal sense) concealment'. Mr R. Cecil, who had applied for Guin­ness shares and been refused, wrote from the Carlton Club to denounce 'one of the most disgraceful Frauds on the Public that in my experience has ever been concocted'."



Philip Ziegler


The Sixth Great Power: A History of One of the Greatest of All Banking Families, The House of Barings, 1762-1929


Borzoi Boo, published by Alfred A Knopf, Inc


Copyright 1988 by Barings Brothers & Co. Ltd and P.S. & M. C. Ziegler & Co.


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