Cazenove quits as broker to Telegraph group: Leading City firm severs link with Conrad BlackInstitutions left with pounds 27.5m losses after paper's price cut

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The Independent Online
CAZENOVE & CO, the City's most blue-blooded and influential stockbroker, yesterday took the unprecedented step of publicly announcing its decision to resign as broker to the Telegraph, publisher of the Daily Telegraph and Sunday Telegraph.

The move was widely expected in the wake of City fury over the sale of 12.5 million Telegraph shares to institutional investors by a company controlled by Conrad Black, Telegraph chairman, only five weeks before the company opted for a price-cutting strategy that has savaged its share price.

Cazenove yesterday refused to explain the reason for its resignation. A terse statement to the Stock Exchange was issued by the Telegraph stating that Cazenove had stepped down. Panmure Gordon, joint broker to the Telegraph with Cazenove, would continue in its role, the statement said.

Hollinger, the Canadian holding company controlled by Conrad Black, sold the 12.5 million shares on 19 May at a price of 587p to raise pounds 73m, reducing its holding from 66 per cent to 57 per cent. The placing was conducted by Cazenove with the aid of Goldman Sachs, the US investment bank.

News last Thursday that the Telegraph was to cut the price of the Daily Telegraph from 48p to 30p caused Telegraph shares to collapse to 332p at one point. After recovering a little subsequently, they closed 15p lower at 364p last night leaving those institutions that bought Hollinger's Telegraph shares with losses of pounds 27.5m.

Mr Black has always insisted that there was no connection between the Hollinger share sale and the announcement of the price cut. Last week the Stock Exchange came to the same conclusion after an investigation.

Mr Black has also described the subsequent share price fall as a 'ludicrous over-reaction' by the City.

Although the cut in the price of the Daily Telegraph to compete with the Times, now selling at 20p, would cost a gross pounds 40m in a full year, he said he believed that up to pounds 25m of that shortfall could be recovered from reduced costs, lower tax payments and extra revenues. The impact on profits could be limited to between pounds 5m and pounds 10m, he has claimed. Sales had started to rise since the price cut and profits from the Telegraph's interests in Canada and Australia were likely to improve.

Meetings are being organised by the Telegraph with aggrieved institutional shareholders to convince them there was no connection between the share sale and subsequent price cut.

Despite Mr Black's protestations and the findings of the Stock Exchange, the resignation of Cazenove is being taken in the City as a sign of its embarrassment over the Hollinger share placing.

Cazenove, which boasts a client list of top companies out of all proportion to its low profile, owes its strong influence in City affairs to its ability to find investors prepared to purchase shares in the most trying of circumstances.

Its famous 'arm-twisting' approach on difficult placings or rights issues succeeds because institutional investors fear that if they do not agree to take shares when times are hard they may be overlooked by Cazenove when more attractive opportunities come around.

The fact that Cazenove, a partnership whose members currently include the chairman of the Stock Exchange, John Kemp-Welch, has always maintained such a low profile makes yesterday's highly public resignation all the more significant.

Resignations by brokers to companies are infrequent and are usually done with a minimum amount of publicity.

View from City Road, page 33

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