City lawyers are trumpeting innovative share issues which allowed their clients to slash underwriting fees and which are likely to set the pattern for the future.
Lovells corporate partners Nigel Read and Marco Compagnoni led a team of six which advised hotels group Stakis on its £327m acquisition of Metropole Hotels and its £222m rights issue to fund the deal.
Following pressure from the Office of Fair Trading, merchant banks, insurance companies and pension funds have been looking at ways to allow the free market some play in the fees they charge for underwriting share issues. Currently they charge fixed percentages of the cash raised.
Last month, for the first time ever in the UK, Schroders, the main underwriter for Stakis, invited sub-underwriters to tender for a third of the issue at less than the standard 1.5 per cent. The tender was successful and as a result Stakis saved roughly £400,000 in underwriting fees.
The innovative Stakis auction triggered Kleinwort Benson Securities to do the same when it underwrote Bodycote's £115.5m share issue, made to finance the acquisition of a Scandinavian heat treatment group, Brukens Thermotreat. Adrian Clark and his team from Ashurst Morris Crip advised Kleinwort, Bodycote's legal advice came from an Eversheds team led by Edward Pysden.
Pysden said: "We had debated whether or not we should go down that road with the rights issue earlier, but clearly once Stakis did it, the client was pressing for it."
Kleinwort Benson put 50 per cent of the commissions out to tender and shaved £702,000 off Bodycote's underwriting fees.
Pysden said: "This issue was over-subscribed. The next thing to do is to see who dares go on to 100 per cent. And will there be a tender where fees are actually higher than standard?"
He said the procedure will not mean extra work for lawyers, once it becomes common. "At this stage we are drafting new documents and looking at issues that we've not had to consider before."
Nigel Read of Lovells said he thought this kind of underwriting auction could become commonplace, though he admitted it would not always be appropriate. If there was not a big demand for the shares, he said, sub-underwriters would not be prepared to accept lower fees.