DTI lost out by #8m
DTI's sale of AEA Technology was improperly managed, says a report by the NAO. Kathy Greene reports.
DTI's sale of AEA Technology was improperly managed, says a report by the NAO. Kathy Greene reports.
The Department of Trade and Industry (DTI) lost #8m through a series NAO. of errors made during the sale of AEA Technology, according to a report issued last week by the National Audit Office (NAO).
The report said an extra #8m could have been made by the sale if it had been properly managed by the DTI and its brokers Cazenove.
The DTI sold all of its shares in 1996 through floating AEA Technology – the engineering business spun out of the UK Atomic Energy Authority – on the London Stock Exchange at 280p per share.
On the first day of trading the market valued AEA Technology shares at 323.5p.
The share value increased to 617.5p but the sale price remained at 280p.
The NAO report states Cazenove sold the shares for far less than they were worth because it did not test demand for greater prices.
It also said the DTI should have ‘investigated the case for selling its shares in phases’ to ensure its valuation of the shares matched that of the market.
The DTI argued it had been advised in 1993 by Barclays de Zoete Wedd that AEA Technology was unsaleable. It was advised by Cazenove on the appropriate sale price for the shares and there was no evidence of a potential demand at higher prices, the DTI claimed. It also argued that during the sale it increased the indicative price range of the shares from 240p to 280p.
The shares were not sold in phases because it was believed a phased sale would not have been successful.
The NAO report, which was based on advice from Price Waterhouse, stated the DTI did not oversee the allocation of 68 million shares by Cazenove to institutions which included three Cazenove companies.
The NAO also objected to a success fee of #1.8m paid to Schroders financial advisers.
‘The DTI should obtain validation independent of the adviser as to the reasonableness of the methodology and assumptions of estimating the level of proceeds to be used as the basis of the success fee,’ said the Comptroller and Auditor General Sir John Bourn.