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Warburg crowned top of the flops: Of the past year's 132 floats, 77 are trading below their issue price, Independent on Sunday research reveals

William Kay,Paul Rodgers
Saturday 22 October 1994 18:02 EDT
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S G WARBURG, one of the City's top merchant banking and securities houses, has brought more duds to the stock market than any other financial adviser in the last year, according to a survey of flotation flops by the Independent on Sunday.

The firm sponsored five of the 50 worst performing new issues, including Videologic, at half its offer price last week after just three months, and Coda Group, down 68 per cent. And it was also broker to four of the five flops it sponsored, underlining the risks of being an integrated house.

Warburg was also jointly responsible for the disastrous Eurotunnel rights issue in May, now worth just three-quarters of the offer price.

'Clearly we were involved and we take some responsibility,' a Warburg spokesman said this weekend of the firm's role in new-issue disasters. 'But that doesn't mean we guarantee a floor price.' Other firms involved in a raft of unseaworthy new issues are Coopers & Lybrand, the accountants, and the solicitors Freshfields.

Officials at all three firms insisted they had acted properly. The firms, and others that appeared frequently in the analysis, also had significant success stories to boast about. Warburg pointed in particular to the flotation of House of Fraser, noting that at pounds 413m it was worth more than double the combined pounds 152m initial value of the five flops.

However, it is the string of sinking stocks that has dented the confidence of institutional investors in large City advisers. Of 132 new issues checked, 77 had fallen in value compared with just 51 that had risen. Four had not changed. Over the period, the stock market fell 2 per cent.

The worst case is Aerostructures Hamble, which has fallen by 71 per cent.

Some investors are considering legal action against the companies that put the float together - financial adviser N M Rothschild, broker Smith New Court, accountant Coopers & Lybrand and solicitors Dibb Lupton Broomhead.

Michael Hart, the chairman of one large institutional investor, Foreign & Colonial, said he had taken the unusual step of complaining in writing about a recent float, but would not identify which one. 'The prospectus made far more optimistic noises about current trading than appeared justified in hindsight,' he said.

But Warburg said it had not received similar complaints. 'There isn't any suggestion or contention, that we're aware of, that anyone is unhappy with the prospectus aspect of any of the shares with which we were involved,' it said.

Jonathan Bartlett, head of the Smaller Companies Fund at M&G, one of the City's leading unit trust groups, accused companies and their advisers of massaging figures to get issues away.

But Brian Larcombe, chairman of the British Venture Capital Association and finance director of 3i, the country's biggest investor in unquoted companies, rejected criticism of his industry.

Mr Larcombe said: 'Since July 1992 there have been 94 venture capital-backed flotations, of which over 70 per cent have been trading at significant premiums.'

---------------------------------------------------------------- THAT SINKING FEELING ---------------------------------------------------------------- Firms with the most clients among the worst 50 flotations Financial advisers Brokers SG Warburg (5) Smith New Court (4) Robert Fleming (4) SG Warburg (4) BZW (4) NatWest (4) Smith New Court (3) Panmure Gordon (4) UBS (3) UBS (4) Accountants Solicitors Coopers & Lybrand (12) Freshfields (5) KPMG (11) Clifford Chance (4) Ernst & Young (8) Linklaters & Paines (4) Price Waterhouse (5) Dibb Lupton Broomhead (3) Arthur Andersen (5) Gouldens (3) ---------------------------------------------------------------- Comment page 2; City dreams page 3; Risky flights page 12

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