Floats, mergers and meltdowns: 21 years of the FTSE 100

Interactive Investor is 21 years old. To celebrate, our top journalists and the great and the good of the City have written a series of articles discussing what the future might hold for investors. Here's ii editor Lee Wild on the ups and downs of 21 years of the Footsie.

Two years after the birth of Interactive Investor, I began my career in the City. I had been trading oil futures on the old petroleum exchange at St Katherine Docks, but equities had always been my thing.

And these were exciting times: a stockmarket bull run was in full swing and building societies were converting to listed bank status.

It was because of the building society demutualisations that I found work in the dealing room at Midland Stockbrokers. Orders were still taken and dealt over the phone using paper slips, a process that remained unchanged for years.

For the FTSE 100, however, change was in its DNA. Looking back at the Footsie as it was 20 years ago, it's almost unrecognisable.

Momentous change

The public listing of new companies - Halifax, Alliance & Leicester, Northern Rock and Woolwich - brought big changes to the UK's most famous index. In June 1997 Halifax and Alliance & Leicester pushed Smith & Nephew and retail conglomerate Burton Group out of the FTSE 100 index.

Five years later, Burton would fall into the hands of Philip Green. Norwich Union and Woolwich forced out industrial conglomerate Hanson and Imperial Tobacco [now Imperial Brands] at the following quarterly review.

Three years later, in 2000, Norwich Union merged with CGU, itself the product of a previous merger between General Accident and Commercial Union, and Woolwich was taken over by Barclays for £5.4 billion.

Northern Rock suffered nationalisation after the first run on a UK bank for 150 yearsThat was also the year in which Royal Bank of Scotland took out NatWest with a then record £21 billion hostile bid.

After Halifax merged with Bank of Scotland, HBOS, Alliance & Leicester and Northern Rock survived until the credit crunch in 2008.

In the mayhem, then chancellor Gordon Brown forced Lloyds to buy HBOS, Santander snapped up A&L (four years after snaffling Abbey National), while basket-case Northern Rock suffered the ignominy of nationalisation after the first run on a UK bank for 150 years.

The government mopped up what was left of Bradford & Bingley, too. A yo-yo stock after making its blue-chip debut in July 2002 - at that point replacing utility Powergen when it was acquired by Germany's E.on - B&B's branches were eventually rebranded Santander.

Of course, the demutualisations put hard cash in account holders' pockets - about £30 billion, according to estimates - but ultimately the experiment failed. Another big event saw probably more screw-ups than most others.

To investors, the right backers for a business meant more than a financial track recordInterest in so-called technology, media and telecoms (TMT) stocks grew during the mid-1990s, but it accelerated in 1998 when the NASDAQ index rocketed by a third. The dotcom boom had begun.

Two years later, the US index had more than tripled in value. And its success was replicated by its UK equivalent, the FTSE techMARK index.

I remember thinking at the time how crazy it all was: the right backers for a business counted for more than a financial track record as far as investors were concerned. A name ending with ".com" would multiply valuations many times over.

The boom spawned share-based TV programmes and crooked tipsters. Fortunes were made and quickly lost.

Footsie bubble

This meant very little to the FTSE 100, initially at least. All the action was outside the blue-chip index.

But then Arm Holdings came along. Floated in 1998, the once tiny Cambridge-based chip designer (formerly called Acorn) became one of the largest FTSE 100 companies a year later.

Arm, Marconi and CMG replaced defensives GE, Severn Trent and British EnergyCoincidentally, its promotion in December 1999 also marked the peak of the dotcom bubble for the index, at 6,930, a level it quickly relinquished and would not see again for 15 years.

That winter Arm was joined in the top flight by Marconi - whose eventual collapse would be among the most spectacular in stockmarket history - and the acquisitive IT company CMG. They replaced boring defensive stocks General Electric, Severn Trent and British Energy.

Three months later, the index was swamped by an unprecedented 10 new entrants - most of them technology, media and telecom stocks - including Hull's favourite telecoms services provider Kingston Communications (now KCOM), Cable & Wireless, Freeserve, Thus, Psion and internet security specialist Baltimore Technologies.

None of them lasted past Christmas 2000. Baltimore turned out to be the ultimate bubble stock. Still the only AIM company to make it into the FTSE 100, it saw its shares trading for as much as 1,375p, valuing the business at £7 billion.

But by 2001 it was worth pennies. Mike Lynch's Autonomy is also worth a mention. Its rise and fall, too, was spectacular. It was a blue-chip for just three months from December 2000. The software developer was, however, a survivor and rejoined the FTSE 100 in September 2008.

The dotcom bubble came and went, but an unwritten rule existed: never demote supermarketsThis time it lasted three years, until it was bought by Hewlett-Packard for $10.3 billion (£8.2 billion). In 2000 the number of blue-chip constituent changes was 35, twice the number in 1995.

By 2004, after the bubble had burst and as a post-9/11 West struggled with economic downturn, it had slowed to just seven, and three of those were takeovers - Safeway, Amersham and Abbey National.

The dotcom bubble came and went, but it seemed that an unwritten rule existed in the City: never demote supermarkets.

Tesco and Sainsbury's have been ever-present since the Footsie's beginning in 1984, despite the massive threat from German discounters Aldi and Lidl.

Morrisons mislaid the memo last December, though, dropping out of the index for three months. Asda was there in 1984 too, until retail behemoth Wal-Mart came shopping in summer of 1999.

With £6.7 billion of cash in Wal-Mart's purse, an allshare offer on the table from the Kingfisher conglomerate stood no chance, and the Yorkshire grocer soon had new American owners.

Looking ahead

Wandering through the graveyard of plcs, you find tombstones engraved with once mighty names such as Railtrack, ICI, Alliance Boots, British Steel, Guinness, P&O, Granada Media and Friends Life .

By 2037 - 21 years from now - it's a cast-iron certainty that the FTSE 100 will look nothing like it does in 2016. Demotions and promotions as prospects ebb and flow will keep things fresh.

Multinationals will develop new technologies, but there will be start-ups that do it betterWe already know SABMiller will disappear as Budweiser brewer Anheuser-Busch InBev winds up its £79 billion takeover. Others will follow - it's inevitable. Another round of consolidation in the mining sector and among the banks and airlines will happen at some point in the next 21 years.

Who'll buy AstraZeneca: Pfizer or GlaxoSmithKline? What fate awaits the supermarkets as our shopping habits change?

Most exciting of all will be the emergence of the companies not even imagined yet. Multinationals will develop new technologies - think genetics, alternative energy and artificial intelligence - but there will be start-ups that do it better.

Who can spot the next Arm Holdings?

This article was first published in our special publication 21: Twenty-one years of Interactive Investor. Download your digital copy for free here.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser