Zeneca investors' three-way option: Decision time in drug firm's rights issue

SHAREHOLDERS in Zeneca, the drug company demerged from ICI, have until 21 June to decide whether to subscribe for shares in the company's pounds 1.3bn rights issue. The money is being raised mainly to repay Zeneca debt to ICI, writes Maria Scott.

In the demerger ICI shareholders were given one Zeneca share for every ICI held, plus the right to subscribe for a further five Zeneca shares for every 16 held at 600p each.

The options for shareholders in this issue are the same as for any other. They can subscribe for the new shares, sell their rights or do nothing.

Normally, for investors who do not want to buy new shares, the best option is to sell their rights. To do this investors simply approach a broker who will ask for their rights allotment letters. The rights are known in the market as 'nil paid' shares.

The price is based, theoretically, on the difference between the subscription price for the new shares of 600p and the price the market expects Zeneca shares to settle at after the rights issue is finished.

This is known as the 'premium'. Shareholders who sell their rights will end up with assets worth the same as they started with, although part will be in cash. Last day for selling nil paid shares is 17 June.

If investors do nothing, the company will sell their rights after the issue is finished and return the proceeds to the investor, providing the proceeds from the individual's holding of nil paid shares is at least pounds 3.

Adam Griffin, a director of the private client broker Capel-Cure Myers, said investors needed to consider dealing costs when deciding whether it was worth selling their rights rather than simply letting them lapse. For example, at Capel-Cure this would be a minimum of pounds 30.

Advisers and brokers are divided about whether investors should subscribe for new shares in the rights issue. Zeneca's share price has been falling this week, partly on worries about how the US government review of health care may affect sales of its drugs there. The possibility that the underwriters will be left with a large chunk of shares is likely to depress the share price further.

There is an opposing view that the shares - which have a high yield - are an attractive long-term buy. Shareholders can obtain further information about the technicalities of the rights on 0903 702627.

Zeneca and Northern Ireland Electricity shares can now be bought and sold through the Barclays Share Shop Service. The charge is pounds 15 for bargains up to pounds 750 and 2 per cent on deals over this amount.