Citigroup leapt from seventh to first in EMEA ECM league tables last week thanks to Tuesday evening's SFr2.55bn (US$2.64bn) sale of Saint-Gobain's stake in Sika, but there was no fanfare: the deal was not covered and the proceeds secured by the seller implied that the lead had given up at least some of its fee in the process.
Some rivals inevitably enjoyed the US bank's misfortune with wild speculation about how much of the 10.75% stake it was left with and how losses could quickly add up if the stock dropped – shares on Friday remained below where Citigroup had bought them.
However, there was also genuine frustration and no little surprise that the accelerated bookbuild had fallen short as it was hotly anticipated. Some institutions had approached French construction materials company Saint-Gobain directly in recent weeks to express interest in buying the shares, when normally their interest would be conveyed via banks. Multiple banks had also pitched prices to Saint-Gobain in an effort to secure the sales mandate on a sole basis.
Saint-Gobain's stake had been subject to a two-year lock-up when it made peace with Sika in May 2018, giving up on its attempt to acquire the Swiss chemical company after nearly four years of acrimony.
Not only was there obvious investor demand, but it was crystallised by wall-crossing of some investors by Citigroup and JP Morgan on Tuesday, according to an investor and several bankers away from the deal.
One person close to the process said the wall-crossing had turned up expected demand yet it marks the first time of late that the exercise did not translate into a fully distributed trade.
The book ran to around 100 lines and was 70% long-only; the rest was made up of investors taking a fundamental view on a popular stock. Sector funds were prominent and demand was from US, European and Swiss investors. The top 10 orders made up 50% of the book.
The 15.2m shares were offered at SFr168–SFr170 for a 4.4%–5.5% discount to Tuesday's close and the tight pricing put off some interested investors, especially as the Sika sale represented around half of the paper on offer across four deals that evening.
Pricing came at the bottom of guidance for proceeds of SFr2.55bn, though Saint-Gobain recorded it as SFr2.56bn, suggesting Citigroup also ate through some of its fee.
Citigroup was sole bookrunner, and financial adviser alongside Lazard.
"Ultimately it's a great, high-quality stock that people want to own." Words very similar to that are often delivered by those left with shares following an ABB, but those words came from a banker not involved.
Indeed, the stock is something of a market darling with Saint-Gobain booking a €1.54bn profit on a €933m investment two years ago and shares had recovered from the coronavirus selloff to be flat for the year ahead of the selldown.
Speculation about how much stock Citigroup is left with has been as intense as ever, but it is worth keeping an eye out for a shareholder declaration from the bank as the disclosure threshold in Switzerland is 3%. There had been no filing by Friday afternoon when shares were trading around SFr167, one franc below pricing.
The unsolicited bids from banks to Saint-Gobain means conducting an auction among them was the natural approach to selling the stake.
The person close to the process said that in the current environment adding wall-crossing was deemed sensible to give key investors more time.
However, bankers were frustrated at the process where wall-crossing was carried out before the auction. This meant that JP Morgan conducted the wall-cross but was not on the eventual deal, which is – at the very least – confusing for those investors who participated. Bankers were also concerned about liability when other banks had to rely on anonymised feedback from Citigroup and JP Morgan as the basis for their bids.
"Imagine if one of the non-wall-crossing banks is given the feedback, makes a bid and is left long and wrong, nursing a big loss," said one banker not involved who noted that there was inevitably a discrepancy between the feedback received and how that is communicated to others as context and identity is lost.
The process was similar to that on an ABB of Orpea in January. Bankers grumbled about it at the time, but this was kept to a minimum as it was a much smaller trade and they hoped the approach would not be repeated.