Wellcome success set to boost market

TRADING ON the stock market is likely to be boosted this morning by the sale of about pounds 2.2bn worth of shares in Wellcome, the drugs company, and the immediate reinvestment of more than pounds 500m of the proceeds.

Wellcome Trust, a medical research charity, is believed to have sold 270 million shares at 810p, after receiving applications for about 360 million shares.

Confirmation of the exact results of the flotation were held back last night while final details were agreed by lawyers and others. The proceeds are about half the level expected when the sale was announced in March. The trust is the victim of weak stock markets around the world and fears that pharmaceutical companies will experience slower growth rates than in the past.

But there was relief yesterday that applications had exceeded the target sales figure of 330 million shares. Advisers say shares will be allocated in such a way as to ensure an active after-market.

This means allocations were cut back in the hope that the share price would stay above 810p. It closed at 826p on Friday. Stock market investors are likely to be relieved by the outcome of the offer, the largest since the Government sold a second tranche of shares in BT last year.

Fund managers said last week they expected the share price to go higher if the offer was succesful. Volumes will be boosted this morning by more than pounds 500m of deals carried out by Barclays de Zoete Wedd over the weekend. To help the Wellcome Trust reinvest some of the proceeds of the sale, BZW has bought shares in up to 450 companies from pension funds, insurance companies and other large investors.

Investors who tried to sell shares to BZW will be told this morning whether they were succesful. The list of 450 includes a number of stocks, such as Taylor Woodrow and Spring Ram, that have fallen sharply in recent weeks. It also includes a number of stocks in which dealings are rare.

Stockbrokers suggested last week that prices in some of the unpopular stocks would benefit as there would no longer be heavy selling pressure. Nevertheless the effect of the deals could be to move some prices substantially.

The trust, which has reduced its stake in Wellcome from 73.5 per cent to less than 50 per cent, hopes to double its income, which it uses to fund medical research, by reinvesting the proceeds in shares with an average yield of about 5 per cent and in gilts.

The trust's income has been held back because Wellcome pays unusually low dividends. Its shares yield less than 2 per cent. The trust is putting more than pounds 500m in an indexed fund - designed to perform in line with the stock market - run by BZW Investment Management and investing the rest in gilts and the money markets for the time being.

There were applications for 14.4 million shares in the public offer, which closed last Tuesday. About 20 million shares had been set aside. UK institutions applied for more than 145 million shares in the tender offer, which closed on Friday. US investors applied for more than 80 million while interest from the Continent and from Japan was less than expected.

The offer gave rise to an unusual level of activity in the City last night. Robert Fleming, the global co-ordinator of the offer, had 35 people working yesterday, with staff of the other firms involved in the offer also working in Robert Fleming's building. BZW also had about 35 people in the office, with the staff of BZW Investment Management expecting to be working all night so that they could be ready for the start of business this morning.

The BZW facility was shunned by some investors who were worried that they would effectively be giving BZW details of the stocks they wished to sell. This knowledge would give BZW, a leading market-making firm, an advantage.