Rothschild reprimanded over advice to BT on PlusNet deal

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The takeover panel took the highly unusual step yesterday of issuing a public reprimand to the investment bank NM Rothschild after finding it had failed in its duties as a financial adviser to BT during the takeover of the broadband internet supplier PlusNet last year.

It is only the third time in four years that the panel - which polices takeovers and mergers in the UK - has felt it necessary to issue such a rebuke, which will come as a huge embarrassment to the family-owned bank.

The embarrassment was compounded when the panel said it was the third time in recent years NM Rothschild had breached rules imposed by the City code on takeovers and mergers.

In its statement, the panel said BT asked the broker JPMorgan Cazenove to buy shares in PlusNet on its behalf on 20 November, four days after tabling a 210p-a-share takeover bid.

After a telephone call between BT, Rothschild and the broker, JPMorgan Cazenove bought 5.1 million PlusNet shares during the day at 210p - a 17.1 per cent stake in the company.

On the next day, after a second call, a further 15.2 per cent was bought at the same price but this took BT over the crucial 30 per cent shareholding over which companies have to make unconditional bids for the rest of a target company's shares.

BT's bid on 16 November depended on a number of conditions being met, but the share purchases would have required these to be dropped.

It was only when BT's lawyers were alerted on the afternoon of 21 November that the bank realised the mistake. Rothschild was forced to ask for special dispensation to ignore the rules on the grounds that an "inadvertent error" had been made.

The panel said NM Rothschild had failed to explain the significance of buying up more than 30 per cent of its target before the plan was hatched. It also said neither Rothschild nor JP Morgan Cazenove - which escaped public censure - had alerted BT to the problems with its strategy on 20 November. BT was forced to dispose of the excess shares over the 30 per cent of PlusNet it had bought and the company was eventually bought for £66m.

However, the panel had harsh words for Rothschild, saying the fact that the rule had been "overlooked' was "unacceptable".

The panel said it had also considered the conduct of JPMorgan Cazenove but accepted the broker "might have assumed that Rothschild had previously given advice in relation to ... the Code".

But it warned: "Brokers also have responsibilities under the Code, even when their role is primarily concentrated on executing trades on behalf of a client."