The call that did for City rainmaker
DAVID EINHORN:
So – so how much equity do you think you need to raise to protect
the situation? … as you pencil that out, what do those amounts turn out to be?
ANDREW OSBORNE:
Something like 350 sterling.
DAVID EINHORN:
350 million sterling?… Wow, wow. That would be shockingly horrifying from my perspective.
Later in the call:
ANDREW OSBORNE:
I think it’s fair to say that, you know, broadly, most of the other shareholders are supportive.
DAVID EINHORN:
Supportive of what?
PUNCH CEO:
Well, I – stuff that’s in the NDA – [the plans for a capital-raising].
THE FSA took the unprecedented step yesterday of publishing the full transcript of a phone-call that brought down one of the City’s most well-known rainmakers.
Former Merrill Lynch banker Andrew Osborne agreed to pay a £350,000 fine despite denying that he is guilty of “disclosing inside information”. The City regulator published its evidence after the strength of feeling that Osborne had been mistreated became clear.
Osborne himself said that he strongly disagrees with the FSA’s verdict but is paying the fine to “draw a line under this very long, arduous and time consuming process”.
The transcript is a record of a phone-call between the management of Punch Taverns, Punch’s broker Osborne and Greenlight Capital’s David Einhorn, who was one of the company’s biggest shareholders.
The aim was to sound out Einhorn’s support for a major capital-raising that Osborne and Punch thought necessary to avoid a default on the firm’s debt.
But unlike other shareholders, Einhorn refused to “cross the wall” – that is, to sign a non-disclosure agreement (NDA) that would forbid him from selling or buying Punch shares for an allotted period.
Einhorn said: “I am uncomfortable with an NDA that is going to, you know, restrict our ability to, you know, to transact.”
That left Osborne in the difficult position of trying to discuss the details of a capital-raising that Einhorn was not supposed to know about.
The FSA concluded that although Osborne did not deliberately pass on insider information, his role “amounted to market abuse” because he disclosed the huge scale of the share issue being considered (£350m) and gave a strong indication of the timing (“kind of a week”) that suggested the process was in its advanced stages.
Einhorn told them: “I don’t know that we’re going to sign an NDA, because we prefer to just remain investors, but… that gives a lot of signalling value. And the signalling value that comes from figuring out the company has figured out that it’s not going to make it on its own.”
But the transcript shows that Einhorn acted on the basis of information disclosed both by Osborne and the chief executive of Punch, who did the vast majority of the talking.
Following the call, Einhorn sold down his stake in the company, avoiding a loss of £5.8m, an action for which he has been fined £7.2m. The FSA also said that Osborne should have informed the regulator once he found out about Einhorn’s transactions.
But the case will raise concerns that brokers risk disproportionately harsh treatment for actions they take in a difficult grey area between clients and investors.