Leading US investment bank Morgan Stanley Dean Witter pulled out of the race to act as global advisers to the Government on the Aer Lingus flotation, The Irish Times has learned.
It is understood that differences emerged over conditions surrounding the fees to be charged for the airline's initial public offering (IPO), which is expected to occur within the year. The Government hopes to raise up to £600 million (€762 million) from the flotation, although many in the market believe this an optimistic target.
Other sources say Morgan Stanley may have cited a possible conflict of interest in taking on the work, as it acts for Ryanair, the low-cost airline, which is quoted on the Nasdaq and which may go to the market again for funds, perhaps this year.
The Government will announce that Salomon Smith Barney has been appointed to act as global advisers. AIB Corporate Finance, part of AIB Capital Markets, will handle the domestic end of the share placing. It is understood that William Fry solicitors will handle the legal aspects of the float.
Morgan Stanley was one of about three international banks which were short-listed to carry out the flotation. Some sources said yesterday that the Government had been keen for Morgan to handle the work, given its international experience in aviation.
Department of Enterprise, Trade & Employment officials then began negotiating the terms and conditions of the project, with a strong emphasis on keen pricing on fees. However, Morgan Stanley's view on fees differed and it is said the bank declined to proceed.
The normal fee for institutional share placings on behalf of corporates is 2-4 per cent, but companies are prepared to settle for around 2 per cent when carrying out such work on behalf of governments.
The Eircom float, although not directly comparable, resulted in fees of £70 million-plus for advisers. There was some surprise at the level of fees at the time, and it is possible that the Government is anxious to be seen to have got a very competitive rate for the work, on behalf of the taxpayer.
A Morgan Stanley spokesperson was unavailable for comment. The bank has plenty of international experience in airline flotations and was involved in the float of 22 per cent of Air France last year. That flotation raised €600 million.
Salomon Smith Barney already enjoys a relationship with the Department. It also carried out the strategic review of Aer Lingus's future on behalf of the Government last year. The company is well-established in the Republic, through its parent Citibank.
Last night a Department of Public Enterprise spokesman said it had been working on the selection process for a number of weeks and it expected to be in position shortly to announce the successful advisers for the flotation.
The flotation is expected to be a challenging one as many airline stocks are not currently in favour. Most former state-owned European airlines have been filing disappointing results in the past year, although Aer Lingus's results have bucked the trend.
Aside from persuading institutional investors to take part, advisers will also have to sell the airline to retail investors. It is understood that the Government wants the public to take part, although many may take some persuading given their mixed experiences of last summer's Eircom float.
