Fears grow over SEC threat to Zeneca rights

OFFICIAL trading begins today in shares in Zeneca, ICI's newly demerged pharmaceuticals arm, amid growing fears that its simultaneous pounds 1.3bn rights issue will turn out to be a flop because of the interference of the US Securities and Exchange Commission, writes Gail Counsell.

Zeneca's price on the unofficial 'grey' market has slipped sharply since opening at around 680p three weeks ago. On Friday it closed at 630p, close to the 600p rights issue price.

Under normal circumstances the underwriters and syndicate of 12 London stockbrokers handling the issue would have been expected, if necessary, to support the price from today until 21 June, the period for acceptance.

But to the dismay of those involved, the SEC has banned the participating firms from dealing in Zeneca shares during the key final five days of the period. Its view is that otherwise the share price could be manipulated. It will allow the firms to deal in shares during the five days only if the rights issue falls below the rights price.

If the price falls to the rights level of 600p, investors may shun the issue, however. The company would still get its money, but the underwriters, SG Warburg, BZW and Goldman Sachs, could end up being left with a significant number of shares.

Firms participating in the syndicate include Hoare Govett, Lehman Brothers, Merrill Lynch, Deutsche Bank and County Natwest, and account for about two-thirds of London market makers.

A weak debut for Zeneca could prove more than merely a public relations disaster, since it would increase the likelihood of a hostile bid for the company and criticism of the ICI board for the way it handled the flotation.