UK Royal Mail spotlight reopens rift between bankers and advisers

Reuters - UK Focus

(Removes quote suggesting Lazard had not yet been called forquestioning)

By Freya Berry

LONDON, April 11 (Reuters) - The fallout from thecontroversial stock market flotation of Britain's Royal Mail (Other OTC: ROYMF - news) has reopened a rift between the bank and independentadvisers 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 percenton their market debut - well above the normally targetedfirst-day premium of between 5 and 10 percent on such deals.

Subsequent questions over the pricing of the offer havereignited the bad feeling between banks, who sometimes feeladvisers get in the way of their relationship with the companyor government, and the independent firms, who say they helpprotect clients' interests.

At stake are millions of dollars in fees generated byfloating companies successfully on the stock exchange.

Britain's Public Accounts Committee (PAC), a group oflegislators who scrutinise aspects of government finances, saidon 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 thegovernment cut its reliance on financial advisers, or ensure itimproved taxpayer returns where it used advisers in future.

Bankers from Goldman Sachs (NYSE: GS-PB - news) and UBS (Xetra: UB0BL6 - news) , whichacted as global lead managers on the deal, were questioned in a parliamentary session in November last year. Lazard wasquestioned 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 toraise the price range, despite strong investor interest, havedrawn out tensions between the two sides.

But some sources said the pricing structure was significantin the eventual price of 330 pence a share.


Lazard was paid a flat 1.5 million pound fee to complete thedeal, unlike the banks who were incentivized to maximize theprice set and shared 12.7 million pounds between them. As wellas lead managers Goldman and UBS, Barclays (LSE: BARC.L - news) and MerrillLynch were bookrunners on the deal. Investec (LSE: INVP.L - news) ,Nomura and Royal Bank of Canada (Toronto: RY-PC.TO - news) acted asco-lead managers.

Royal Bank of Canada and Investec were not immediatelyavailable for comment. Royal Mail, Barclays, Nomura and MerrillLynch declined to comment.

Adviser fees on public transactions tend to be low. Lazard'sfee 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 ofLloyds shares by the government this year and last.

But the prestige associated with government deals helps thecase for advisers and allows them to command hefty fees in theprivate sector. Unlike banks, which are usually paid between 2and 5 percent of the money raised in a stock market flotation orIPO, advisers negotiate each transaction individually.

As well as the issue of fees, some bankers also highlightedthe long-standing complaint that they sometimes felt underminedby the presence of advisers, who they said could be anobstruction between themselves and the client.

But as the global IPO market bounces back, advisers arebecoming ever more firmly entrenched in the market as companiesseek their guidance in an increasingly competitive environment. Saga, and ISS for instancehave all appointed advisers for their IPOs this year.

And despite the sometimes-strained relationships, bankerssay that amid the rush of deals the two groups are simply goingto have to get along.

For their part, some advisers highlighted that such tensionscould even be a constructive force.

"It's the sparring that goes on between advisers andbookrunners that should get you a better outcome," said anindustry source. "Generally speaking, they don't give a round ofapplause when we're invited, but they work with us."

The Department for Business said in a statement: "The saleprice secured by the government was based on a comprehensiveprocess of preparation, in which we took extensive professionaladvice and consulted with more than 500 investors.

"The National Audit Office report acknowledged that it wasappropriate to appoint professional advisers given the scale andcomplexity of the transaction."($1 = 0.5970 British Pounds) (Editing by David Holmes and Angus MacSwan)

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