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Opinion

Block vendors should think carefully before deciding on deal structure

Mandated offerings, rather than auctions, offer the best chance for a successful sale

The continued strength of stockmarkets in Europe is a pretty certain guarantee that vendors with large blocks of shares to sell will be tempted to hit the market in the fourth quarter.

Governments with privatization programmes are sure to feature prominently. The value of block trades linked to privatizations in Europe has already surpassed A12 billion this year and bankers expect to see a few more multi-billion euro blocks before the end of the year.

Governments and other vendors would do well to look back on how block deals have gone so far this year and how they were done.

Bankers blame the messy execution of a number of blocks, especially earlier in the year, on the practice of selling large blocks to banks in competitive auctions. But it is really bankers' over-aggressive bids for blocks that have led to their poor pricing, not the practice of selling blocks by auctions per se.

Vendors favour auctions because they give them a high and often guaranteed price. It is also easy for them to argue that they got the best price because they invited the world's biggest investment banks to bid for the shares and sold them on to the highest bidder.

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