Somerfield fiasco leaves egg on Kleinwort's face

The spectacle of Kleinwort Benson forlornly wheeling the Somerfield orphan around the company's supermarket rivals in the vain hope that a trade sale might extract a higher price than a flotation rather puts the cap on one of the more humiliating new issues of recent years.

What makes it odder still is that the desperate ring-round of Tesco, Sainsbury's and co took place long after Kleinwort and Somerfield had cut the offer price for a second time and finally got it underwritten. As sponsor of the issue, Kleinwort was clearly under a duty to maximise proceeds for the vendors. It also needed to protect its back against litigation should any of the debt-holders in Isosceles, Somerfield's parent company, claim that the business had been sold too cheaply and reach for their lawyers.

The fatal error, however, was made not at the close of the offer but right at the start. The sponsors and the company were guilty of being too greedy by putting a price in the window that encouraged institutional shoppers to walk on by.

When the inevitable happened and the price was cut for the first time, Kleinwort was on the run and the institutions knew it. Against a backdrop of volatile markets and desperation to get the offer away, all they had to do was sit back and wait for the price to be cut again. And so it was.

Kleinwort justified whittling down the price from 180-190p to 145p by citing the state of the markets. The excuse is only partly borne out by reality. Between the setting of the indicative price and the final price the FT-SE 100 index fell 1.7 per cent - hardly enough to justify a 22 per cent cut in the offer price.

Few players emerge from this debacle unscathed. David Simons and his fellow directors saw their "beats-robbing-the-bank" bonuses cut back, private investors were treated shabbily by not being allowed to buy more shares at the cheaper price, and Somerfield's banks ended up writing off more debt than they wanted to.

But Kleinwort comes out worst. What with the flop of the British Biotech rights issue, where it was also the sponsor, and the disaster of its European privatisation trust, Kepit, Kleinwort is plainly going through something of a bad patch.

Simon Robertson, Kleinwort's chairman, can only hope and pray that Somerfield does not add still further to his woes by rocketing to an embarrassing premium when the shares shares start trading today.

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