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Daily Telegraph: Stockbrokers gun for Qinetiq float

(Filed: 25/01/2006)
Stockbrokers are outraged that Joe Public is to be excluded from the float of the defence group. But, as Paul Farrow reports, this is only the latest in a series of snubs to private investors
Stockbrokers are up in arms following the move by Qinetiq, the Government-controlled defence group, to exclude the British public from its impending float. They say it is yet another in an increasing number of cases where private investors are being discriminated against.
Gunning for shares: brokers are outraged that private investors are excluded from Qinetiq's float
The Ministry of Defence, which is selling its 50.6 per cent stake, has ruled out an offer to the public because it is expensive to administer while the business is “complex and unusual” and does not lend itself to the British Gas “Tell Sid” and BT offers of the 1980s.
The Association of Private Client Investment Managers and Stockbrokers says the trend of small shareholders being marginalised is a major concern. Last year many shareholders of mmO2 and Shell Transport & Trading were discriminated against, the association added.
It has now fired off letters to the bosses of all FTSE350 companies to remind them to bear in mind private shareholders should an expected pick-up in M&A activity cause them to alter their corporate structures and issue new shares.
Angela Knight, chief executive of Apcims, says the Qinetiq excuse of the IPO being costly is “spurious” and is a mixed message from a Government apparently committed to encouraging share ownership. “It is nothing like as costly as Qinetiq has implied. Individuals use the internet and electronic means these days. There is time for them to change their minds,” she says.
The UK Shareholders' Association has branded the decision by the Government to exclude private investors as “patronising and arrogant”, while Gavin Oldham at the Share Centre is equally outraged.
“The chancellor says he wants a share-owning democracy – this is not the way to achieve it,” says Oldham. “The way it's been done denies private investor access at the offer price, it also requires them to make their purchase in the secondary market subject to stamp duty. As a result, the company's capital structure is polarised towards institutions, resulting in an illiquid secondary market. This is not good for the health of democratic capitalism.”
“Millions of people latched on to the privatisation dream in the 1980s and 1990s but at the time, new issues were required to offer at least 25 per cent of shares to the public. This is no longer the case,” says Oldham.
“The rule was changed as a result of persistent pressure from investment banks and corporate brokers. The effect is now clearly visible as the great majority of new issues are made as placings,” he adds.
The storm over the Qinetiq IPO comes with brokers urging the Government to take a fresh look at all the deterrents to direct share ownership – tax, shareholder's rights, lack of access to new issues. For example, they say that people are increasingly investing in companies by trading in contract for differences rather than shares. CFDs do not incur stamp duty, while trading in shares costs a punter 0.5 per cent of the value of shares bought.
Another major bug bear of brokers is the rights of private investors who hold shares in a nominee account. Brokers say investors who choose to use a nominee company should be enfranchised as if they hold full legal title. In other words, they should get the perks, the annual report and the invitation to meetings.
But they do not always get the same rights. For example, small nominee shareholders in mmO2 were not allowed to apply for the cash alternative in the mobile phone company's share swap offer when it rebranded itself as O2 last March.
The O2 offer involved either a straight share swap or a cash alternative at a 5p premium to the share price. But only shareholders whose names were listed on mmO2's share register were eligible for the cash alternative. Nominee investors did not get the opportunity to accept the cash offer because they were not named individually on the share register.
The issue of nominee rights is high on the agenda because the number of such investors is increasing by the day: 85 per cent of shares owned by private investors are held electronically in nominee accounts.
However, only the registered shareholders – which include investors with share certificates – are automatically sent interim and annual reports and accounts, for instance. Only registered investors are invited to annual meetings and, importantly, are allowed to speak and vote.
In addition, most nominee investors miss out on shareholder perks. For example, nominee shareholders in Eurotunnel do not qualify for discounts of up to 30 per cent off their fares. Many people with nominee accounts don't even have a choice about how their shares are held. Shares in Isas and Peps, for instance, have to be held in nominee names.
Bosses are keeping their fingers crossed that nominee investors may be given equal rights in the Company Law Reform Bill, which had its second reading 10 days ago. But Oldham wants an amendment in the Bill because as it stands the disenfranchisement would be voluntary and not compulsory. “If companies are given the choice, I fear that the situation we have today will remain.”

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