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Outlook: Warburg rides into a spot of poor form

THE COLLAPSE of the William Hill flotation is said in the City to have done the reputation of Guy Hands and his employer, Nomura, no good - though it is hard to see what can be wrong with selling out to venture capitalists for more than could have been achieved through a share listing.

But there is another investment bank whose image has also been left badly tarnished by the affair. Warburg Dillon Read, which acted as Nomura's adviser, is said to be hopping mad that its client pulled a financial buyer out of the hat just as it thought it had got the flotation safely away by cutting the offer price from 175p to 135p.

It is easy to see why relations between Finsbury Avenue and St Martin's Le Grand might be strained. Warburg has just kissed goodbye to the best part of pounds 7m in fees while Nomura would have been pounds 45m worse off if it had gone ahead and floated William Hill at the offer price of 135p secured by Warburg.

The recriminations, needless to say, are flowing nicely. But on this occasion, it looks like Warburg which is mainly in the wrong. The defence from the Warburgs camp is that its letter of engagement required it to advise on a flotation of the business, not a trade sale or any other kind of auction.

The first, evidently, that it knew of Cinven's preparedness to pay the equivalent of 150p a share was minutes before William Hill actually changed hands on Saturday afternoon. To make matters worse, the venture capitalists had indicated their interest in buying the business at a higher price the previous Thursday night, after the offer price had been fixed. This merely begs the question as to why Warburgs was not in receipt of the same facts. It says it was not told by its client. But did it not have a duty to its client to test the market to establish whether a better deal was on offer?

This is what Kleinwort Benson did when the flotation of the supermarket chain Somerfield had to be scaled back in price, not once but twice. As it happens none of the trade buyers contacted were interested.

So why did Warburgs fail to undertake such an exercise? Was the smell of the fees too much to resist? Or perhaps Warburgs was merely doing the decent thing by the army of private investors who had piled in for four times the number of shares initially allocated to them?