Hannam, the veteran dealmaker who left JP Morgan last year to fight a market abuse case against the City’s rule-makers, is said to have played an influential role in making a fund-raising deal happen, as revealed earlier this week in City A.M.
This shouldn’t be surprising in itself because this kind of thing is what Hannam is so renowned for, but it does raise comment for at least two reasons.
Firstly, Hannam’s former employees are one of the company’s joint advisers along with Goldman Sachs; and secondly, why would FirstGroup, who had two of the City’s most powerful banks as advisers, need to rope him in in the first place?
Those close to the transaction say the FirstGroup board, strongly influenced by chairman Martin Gilbert, brought Hannam into the mix when it appeared that the transport group’s finance director Chris Surch, together with the existing advisers, were struggling to win support from the market for an issue.
Many investors opposed putting more money into the company but didn’t want to be diluted if a fund-raising went ahead and had urged the group to make savage cuts in its dividend payments instead.
Gilbert, who is leaving the company as soon as a successor is found to spend more time at Aberdeen Asset Management where he is chief executive, had other ideas.
With Hannam playing the role of the independent equity capital markets adviser, a job that a group like STJ does so often, he started to lead the discussions and more than two weeks ago sought out the help of Bank of America Merrill Lynch (BoAML). The bank agreed to act in principle without knowing the name of the client.
When Hannam eventually told BoAML who the client was, there was some trepidation at the bank’s St Paul’s City office since there was a possible conflict with FirstGroup rival National Express, which is a BoAML client on the equity side.
BoAML was given permission by National Express to become a joint bookrunner on the deal, a position it accepted.
With BoAML, a bank that has a large market share in trading FirstGroup equity, on board, there was far greater confidence in getting the issue fully underwritten. Though some say that Goldman Sachs and JP Morgan still required some persuading to do so.
There having been considerable tension between some of the advisers, the whole group will now have to focus on making sure the issue is a success.
Shares in the group have already fallen from the pre-rights price of 223.8p to 134.6p yesterday. But there would have to be a serious loss of confidence for them to fall below the 85p price of the new rights shares.
The FirstGroup rights issue certainly has a different, less confident feel to the one launched a few days ago by the holiday group Thomas Cook. Sentiment is shaky. The group and all its advisers need to pull together, fast. email@example.com