BZW capitulates on rights auctions

BZW yesterday joined the City's move towards cutting the cost of rights issues through an auction of the sub-underwriting, with a pounds 35m fund raising for Finelist, the car parts distributor.

So far Schroders and Kleinwort Benson have been the only merchant banks to employ auctions of the sub-underwriting to cut the costs for clients.

The failure of other corporate advisers to employ similar techniques has led to suspicions that some of the bigger investment banks, including BZW, have been boycotting the idea.

The BZW auction is the sixth to be launched by a City investment bank since last October, as part of a campaign to persuade the Office of Fair Trading not to refer the fixed-commission system to the Monopolies and Mergers Commission for an investigation.

However, Chris Lloyd of BZW said the rights issue for Finelist, BZW's first auction, proved the mechanism worked and he added: "We'd like to move forward."

The auction of half the sub-underwriting saved the company 37.7 per cent of the normal fixed-commission scale charged by City firms for capital for companies. This was a reduction of pounds 315,000 in fees.

An innovation by BZW was a decision to open the auction to all institutions that wanted to join the bidding, even if they were not already sub-underwriters. Mr Lloyd said this had attracted a "healthy number" of additional bidders.

He said BZW also had an alternative system to auctions in mind but it was "not sufficiently developed to be used".

Finelist's rights issue was to help finance the pounds 61m acquisition of Ferraris Piston Services from Tomkins, which paid pounds 2.2m for it in 1984 - its first acquisition.

The OFT has conducted two inquiries into the fixed-commission scale for rights issues. The second, in December, gave the City a reprieve for a few months to see how far the auctions would develop before a decision was made on whether or not to refer it to the MMC.

Investment column, page 22

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