Warburg on carpet over Lasmo: Early ruling upholds investors' complaint that merchant bank mishandled share raid at oil company

THE STOCK Exchange is set to deliver a humiliating verdict on SG Warburg, the City's leading merchant bank, over its handling of a controversial market raid for 10 per cent in Lasmo, the oil group.

An ad hoc panel set up by the Exchange to inquire into the affair has upheld at least one of the complaints against Warburg, in a preliminary ruling made about a week ago.

The raid was spearheaded by Warburg on behalf of Enterprise Oil in a last-ditch attempt to turn round the faltering pounds 1.6bn bid for Lasmo two months ago. Several institutional investors complained they were unfairly denied a chance of selling their Lasmo shares for cash in the raid.

''The panel has reached a preliminary view which is now being discussed with the parties concerned,' said a spokeswoman for the Exchange. But she refused to elaborate.

The initial ruling is thought to relate to a complaint filed by Swiss Bank Corporation, alleging that it was unable to sell Lasmo shares despite pre-placing a sell order with Warburg Securities in anticipation of the raid. It is believed to have submitted some documentary evidence to support its claim.

Along with other investors, Swiss Bank has claimed it was ignored in favour of institutions more supportive of the bid.

Stock Exchange rules stipulate that all such pre-placed orders should be satisfied first. The Exchange has yet to resolve some key issues before delivering a final verdict, but its initial stance could further damage Warburg's standing in the City.

Relations between Swiss Bank and Warburg are already at a low ebb, after the two sides clashed over their roles in the pounds 858m rights issue launched by Eurotunnel earlier this year.

In a separate move, Warburg Securities received another setback on Friday when it was sacked as stockbroker to the Argyll Group, the Safeway chain. It has been replaced by Barclays de Zoete Wedd.

Warburg has borne the brunt of the criticism for Enterprise's failure to win control of Lasmo, despite the target's weak financial position and recent management problems.

Warburg, supported by Enterprise's other advisers - Fleming, James Capel and Lehman Brothers - played a crucial role in devising the company's complex all-paper offer, comprising a mix of warrants and a new class of shares.

The bank was also instrumental in arguing for the controversial market purchase at a cost of pounds 170m.

Under the City's takeover rules governing all-paper bids, Enterprise was allowed to buy up to 10 per cent in Lasmo in the market for cash.

The biggest seller in the raid was PDFM, the fund management group, which owned a 17 per cent stake in Lasmo and was its biggest shareholder. But the firm sold almost half its shareholding for 169p a share in cash, a substantial premium to Lasmo's prevailing market price of about 141p.

The other sellers included Sun Life and Legal & General. Three of the four institutions that benefited from the cash offered in the raid later accepted the paper element in respect of their remaining holdings.

But the raid failed to swing the balance in Enterprise's favour. With just 23 per cent of Lasmo's shareholders accepting the offer, the total amount controlled by Enterprise by the time the bid closed on 30 June was well short of the City's most pessimistic expectations.

Most of the acceptances came from institutions that had benefited from the raid, leading to calls for changes to the takeover rules.

The Takeover Panel said there were no plans for change at present. Warburg and Swiss Bank refused to comment.

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