(Removes quote suggesting Lazard had not yet been called for
By Freya Berry
LONDON, April 11 The fallout from the
controversial stock market flotation of Britain's Royal Mail
has reopened a rift between the bank and independent
advisers who run such deals.
Accusations that taxpayers lost money on the 2 billion pound
($3.3 billion) float arose after the shares closed up 38 percent
on their market debut - well above the normally targeted
first-day premium of between 5 and 10 percent on such deals.
Subsequent questions over the pricing of the offer have
reignited the bad feeling between banks, who sometimes feel
advisers get in the way of their relationship with the company
or government, and the independent firms, who say they help
protect clients' interests.
At stake are millions of dollars in fees generated by
floating companies successfully on the stock exchange.
Britain's Public Accounts Committee (PAC), a group of
legislators who scrutinise aspects of government finances, said
on Thursday it would again quiz independent firm Lazard
over its role in the Royal Mail float.
Its comments came a week after a National Audit Office (NAO)
report said the deal had been underpriced and recommended the
government cut its reliance on financial advisers, or ensure it
improved taxpayer returns where it used advisers in future.
Bankers from Goldman Sachs and UBS, which
acted as global lead managers on the deal, were questioned in a
parliamentary session in November last year. Lazard was
questioned a week later.
Goldman, Lazard and UBS declined comment.
In the "blame game" following the Royal Mail float,
questions about who was responsible for the decision not to
raise the price range, despite strong investor interest, have
drawn out tensions between the two sides.
But some sources said the pricing structure was significant
in the eventual price of 330 pence a share.
Lazard was paid a flat 1.5 million pound fee to complete the
deal, unlike the banks who were incentivized to maximize the
price set and shared 12.7 million pounds between them. As well
as lead managers Goldman and UBS, Barclays and Merrill
Lynch were bookrunners on the deal. Investec,
Nomura and Royal Bank of Canada acted as
Royal Bank of Canada and Investec were not immediately
available for comment. Royal Mail, Barclays, Nomura and Merrill
Lynch declined to comment.
Adviser fees on public transactions tend to be low. Lazard's
fee for Royal Mail was just 0.05 percent of the deal's value,
and it earned nothing for the sales of 7.2 billion pounds of
Lloyds shares by the government this year and last.
But the prestige associated with government deals helps the
case for advisers and allows them to command hefty fees in the
private sector. Unlike banks, which are usually paid between 2
and 5 percent of the money raised in a stock market flotation or
IPO, advisers negotiate each transaction individually.
As well as the issue of fees, some bankers also highlighted
the long-standing complaint that they sometimes felt undermined
by the presence of advisers, who they said could be an
obstruction between themselves and the client.
But as the global IPO market bounces back, advisers are
becoming ever more firmly entrenched in the market as companies
seek their guidance in an increasingly competitive environment.
Saga, AO.com and ISS for instance
have all appointed advisers for their IPOs this year.
And despite the sometimes-strained relationships, bankers
say that amid the rush of deals the two groups are simply going
to have to get along.
For their part, some advisers highlighted that such tensions
could even be a constructive force.
"It's the sparring that goes on between advisers and
bookrunners that should get you a better outcome," said an
industry source. "Generally speaking, they don't give a round of
applause when we're invited, but they work with us."
The Department for Business said in a statement: "The sale
price secured by the government was based on a comprehensive
process of preparation, in which we took extensive professional
advice and consulted with more than 500 investors.
"The National Audit Office report acknowledged that it was
appropriate to appoint professional advisers given the scale and
complexity of the transaction."
($1 = 0.5970 British Pounds)
(Editing by David Holmes and Angus MacSwan)