City & Business: City expresses its displeasure at sell-out debs who fail to delight

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The Independent Online
NEWLY FLOATED companies seem to be hitting the rocks with indecent frequency. The profits warning and subsequent share collapse last week of McDonnell Douglas Information Systems, the computer software group, was the sixth this year by a stock market debutante, and by far the most serious.

MDIS was a hefty pounds 260m flotation. The Pru, Commercial Union and Mercury Asset Management are among the many institutions who piled in to the shares in March and are now nursing burnt fingers.

They may look back wistfully to 1973 when Baring's, the sponsor of MDIS, floated another company that went horribly wrong within months, Home Counties Newspapers. Baring's then nobly coughed up some compensation because Home Counties had missed a profits forecast made in the prospectus.

There won't be the same largesse this time round. Although the house broker, NatWest Securities, made a profits forecast, no such hostage to fortune appeared in the actual prospectus. Indeed, on re- reading the offending document ('Prospects: the directors believe that MDIS is well placed to grow strongly']), you come away not entirely clear on how the company actually makes its money.

What's especially galling for bruised shareholders is the fact that 17 senior managers of the company cashed in half their shareholdings at the time of the float, taking personal profits of pounds 10m when the shares were riding high. Institutions are getting increasingly fed up with managers who use the flotations as a time to exit, only to see the shares collapse a few months later.

The question is more than academic for the commodities group ED&F Man, one of the biggest new issues of the year. It is coming to the market next week in a flotation valuing it at pounds 463m. The float will make paper millionaires of 50 of the top managers and hugely enrich another 70.

Schroders, which is sponsoring the float, is making sure they are at least temporarily locked in. The directors are selling about 10 per cent of their holdings, yielding them pounds 15m. However, they have agreed not to sell any more shares - they have another pounds 152m worth - 'without the prior consent of Schroders' before the 1995 interims next Christmas.

The other 120 shareholding staff are cashing in to the tune of pounds 35m but still have a pounds 180m investment in the company. They are prohibited from selling before next summer. At least institutions can take comfort that if Man were to hit rough waters immediately, the management would also feel pretty seasick.

Man has been a good company with a 200-year history and a strong recent track record. True, it carries considerable risk, because it takes positions in the commodities markets. But this seems to be fairly reflected in the modest float price.

However, Man's plutocracy of super-rich managers is likely to prove a negative for shareholders. First, they will inevitably start liquidating their holdings once the standstill deadlines pass: even the most fanatically loyal Man manager knows it is potty to have 100 per cent of a nestegg in a single basket. The shares look likely to suffer from the drip, drip, drip of big sellers for many years.

The second downer is more psychological. Shareholders like their managers to be a little hungry. I suspect some will shy away from investing in a company where the entire top, upper and middle management could retire to the Bahamas tomorrow.

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