Exchange investigates raid debacle: Lasmo investors seek DTI inquiry and change of rules as anger intensifies City expects heads to roll

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THE Stock Exchange is launching an investigation into last week's market raid by Enterprise Oil for 10 per cent of Lasmo, as anger among City and US investors over the episode intensifies.

There are also calls for a Department of Trade and Industry inquiry into the affair and a change in the rules to outlaw practices of this kind. Late last night rumours were rife that City heads were about to roll over the debacle.

A committee of the Stock Exchange is scheduled to hear complaints at a specially convened meeting tomorrow that a number of large Lasmo shareholders were unfairly deprived of the cash bid on offer during the raid.

The investors claim that in anticipation of the raid, they pre- placed orders with Warburg Securities to sell Lasmo shares to Enterprise at the 'see through price'. However, Warburg failed to execute the transactions.

Stock Exchange rules stipulate that all such pre-placed orders should be satisfied first. The investors believe their orders may have been ignored in favour of institutions more supportive of the bid.

Three of the four institutions that benefited from the cash on offer during the raid later accepted the bid. Normally in such transactions it is the practice of the bidder, advised by his stockbroker, to pick off those hostile to the bid.

The decision to make the raid was taken at a critical meeting between Graham Hearne, Enterprise's chairman, and representatives of Warburg the evening before it was launched. James Capel, Enterprise's other stockbroking firm, was also represented. Robert Fleming, jointly advising on the bid with Warburg, was not consulted.

According to one banking source, it was decided that an offer should be made to Phillips and Drew Fund Management, owners of 17 per cent of Lasmo's stock, to buy half its shareholding. Warburg believed that if the other half of the PDFM stake was assented, then it was still possible to win the bid.

Enterprise obtained prior clearance from the American Securities and Exchange Commission to undertake its raid. The SEC gave the exemption on the basis that the raid would be an 'open market operation'.

Though US law meant that the cash offer could not in any case be made available to US investors, the SEC is said to have been irritated by the manner in which the raid was conducted. 'This was not an open market operation,' one source said. 'Only four investors seem to have got the call. The SEC feels it was in some way hoodwinked into giving the exemption.'

As the post mortem into how Enterprise came to fail got under way in earnest yesterday, fingers were being pointed firmly at Warburg, which dominated strategy throughout the bid.

'The size of the non-acceptance plainly shocked everyone,' one Enterprise source said. 'Clearly Warburg misjudged the extent to which giving favourable treatment to PDFM would annoy everyone else.

'People also forget that the British don't like to say 'no' to your face. Warburg might easily have got the impression that institutions with no intention of accepting were on its side.'

Mr Hearne is understood to be ready to accept splitting his role as chairman and chief executive if he feels there is sufficient City pressure for the move.

However, one adviser said criticism of his autocratic manner missed the point. 'If anything his fault was to delegate the day-to-day running of the bid too much.

'He made mistakes and sometimes his manner seemed arrogant but he was by no means the main problem with this bid.'

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