Cazenove and Schroders rapped over AEA float

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CAZENOVE and Schroders were sharply criticised yesterday by the public spending watchdog, the National Audit Office, for their role in advising on the pounds 228m sale of AEA Technology, which has more than doubled in value since privatisation 18 months ago.

Shares in the company, the commercial arm of the UK Atomic Energy Authority, soared to a 15 per cent premium on their first day of trading in September, 1996.

Since then the shares have risen from an issue price of 280p to 662.5p, valuing AEA Technology at pounds 566m.

The NAO criticised Cazenove, the Department of Trade and Industry's brokers, for failing to test demand for the shares at prices higher than 280p, pointing out that an increase of just 10p in the offer price would have raised the sale proceeds by pounds 8m.

The NAO's report also reveals that three Cazenove companies were among the institutions to which it allocated a total of 68 million shares.

The DTI's failure to oversee the allocation of these shares was criticised by the NAO.

However, it added that there was no evidence that Cazenove had unduly favoured any institutions, including its own companies, in the allocation process.

Schroders, the department's financial adviser, was criticised over the pounds 1.8m success fee it received following the sale. The size of the fee was linked to the extent that the sale proceeds exceeded Schroders' own estimate of the likely receipts.

However, there was no independent review of the methodology and assumptions made by Schroders.

The NAO also says that privatisation proceeds were even lower than the pounds 228m achieved, since some of the pounds 121m of restructuring charges incurred by the Government before the flotation should reasonable be regarded as sale costs.

The chief executive of AEA technology is Dr Peter Watson, who was also the chairman of the train leasing company Porterbrook and made a pounds 3m profit on his shares when the company was bought by Stagecoach. That sale was savagely criticised by the NAO in a report last week.

Total costs of advisers on the AEA flotation came to pounds 8.134m. In addition to its success fee, Schroders received a basic fee of pounds 560,000 while Cazenove received pounds 2.32m.

In its recommendations, the NAO said that in future the Government should consider the case for phasing sales - the flotation of AEA Technology involved 100 per cent of the shares.

It also said that when relying on prior soundings taken in the market, the process should be conducted rigorously so as to give a good indication of the likely demand at different prices.

Although Cazenove increased the price range from 240-270p to 250-280p, there had to be significant scaling back of allocations after the issue was heavily oversubscribed.