View from City Road: Bringing share issues to book

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The Independent Online
AFTER BT and Wellcome, there will be Procordia, DSM, Repsol and a clutch of other European companies. They are all planning international share offerings.

It may be hard to believe with stock markets around the world so weak but about a dozen international share issues are planned for the next year. They include privatisations in Italy, Finland, Holland and Spain. ICI is expected to raise up to pounds 1bn at the time of its demerger next year, possibly through an international offering.

Already financial advisers are fighting for the business. There are substantial fees to be earned - Wellcome paid about pounds 100m - from international share issues.

Banks are not just fighting over mandates. They are also at loggerheads over the best way to structure international share offerings. The UK has traditionally sold large tranches of shares through fixed price, underwritten share sales. But this structure is unfamiliar to overseas investors.

Shares sold internationally have to adopt the more widely used book-building approach. This allows advisers to price shares after gauging support from investors.

But there are two different ways of running a book-building programme, illustrated by the Wellcome and GPA Group share sales. For the Wellcome offer Robert Fleming, the merchant bank, ran a 'book', or electronic record, which was 'transparent'. Each day its staff noted responses from investors. As a result they could look up whether Prudential of the UK or an American pension fund had bid for shares and, if so, at what price and in what size. They could also track how they had changed their bids over the period.

The approach adopted with GPA Group, the Irish leasing company, was quite different. The book was neither kept in one place nor was it transparent. Its opacity helps to explain why the decision to pull the offer came as such a surprise. On the face of it there should be no contest between the two approaches - Wellcome Trust received pounds 2bn, less than it hoped for but better than GPA, which raised none.

UK houses, led by Warburg which handled the BT share sale last year, and Fleming, naturally believe their approach is best. American rivals are not so sure. Morgan Stanley and Goldman Sachs warn that it is difficult to keep a transparent book where retail investors are a significant factor.

Goldman and Warburg are working together on the sale of shares in Procordia, the Swedish company with which Volvo attempted to merge, planned for later this year or early next. This will provide an interesting test of the extent to which they agree on book building.

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