Goldman Sachs Sets (Another) Block Trade Record

In May 1997, Goldman Sachs is selected as sole handler of the Kuwait Investment Office’s block sale of British Petroleum shares valued at US$2 billion, the largest-ever executed by a single firm.

Following the market crash of 1987, the Kuwait Investment Office (KIO), the London-based investment arm of the Kuwaiti government, accumulated a large quantity of shares in British Petroleum (BP), then the world’s third largest oil company. By 1988, Kuwait owned 21.7 percent of the company. At the behest of the British government (through the Monopolies and Mergers Commission), the KIO reduced its stake in BP to 9.9 percent that year.

By 1997, the stock had nearly tripled in price and the KIO looked again to reduce its stake – this time by selling 170 million shares, or about 3 percent of BP’s outstanding shares. Acting through its advisors at Schroders plc, the KIO approached Goldman Sachs and three other banks after the London market closed Wednesday, May 14, and gave them all just one hour to present a bid to purchase the block of BP shares, valued at approximately US$2 billion (GBP1.22 billion).

Goldman Sachs was widely recognized as a leader in block trading, with some even crediting the firm’s Gus Levy and Bob Mnuchin with inventing the practice. The opportunity the Kuwaiti government presented was the largest-ever block trade executed by a single firm. It was also highly risky: the value of the BP shares represented 37.6 percent of Goldman Sachs’ equity capital. Yet the firm quickly set to work preparing a bid based on a strong understanding of the stock (back in 1987, Goldman Sachs had led the US tranche sale of the British government’s remaining interest in BP), the market, and the likely buyers of the shares. The bid was successful, and in less than 24 hours (before the London Stock Exchange opened on May 15) the firm purchased – and resold – 170 million shares of BP.

Goldman Sachs’ willingness and ability to undertake significant but well-calibrated risk and execute broad distribution under tight time constraints raised the standards once again in block trading. It would also lead to more deals for the firm, including – just one week later – British Airways’ sale of its 22.5 percent stake in USAir, valued at US$500 million.

 

This article was originally published as part of a series commemorating the 150th anniversary of Goldman Sachs’ founding in 1869.