Scrutator: Wellcome sells 'em cheap

The cynic's version of the pounds 2bn sale of shares in Wellcome last week runs much like this:

'The motor trade is terrible, Tel boy. I 'ad a dozen old Escorts on me 'ands. The trade price was around pounds 1,100 apiece and I would have taken pounds 950 each. Along came these City geezers and said: 'Don't worry, Guv, give us a bit of a turn and we'll get rid of 'em all.'

'Well, they took weeks to shift, even at pounds 800 each, and then they didn't sell them all.

'Something about flooding the market, they said.'

The official version of the sale is that it was a triumph. The Wellcome Trust managed to offload around 30 per cent of its holding and reinvest the proceeds in shares which yield more than Wellcome itself. Far more cash will flow each year to medical research, they say. Ummm.

Rather than go in for an old- fashioned offer for sale backed by underwriters, Wellcome, which was advised by merchant bank Robert Fleming, opted for a book-building exercise. This is a bit of pseudo- science in which those companies selling the shares ask likely buyers how many they want and at what sort of price.

It is a common practice on Wall Street because the underwriting of share offers is virtually unknown in the US and book-building earns millions in fees for the firm lucky enough to have the business.

The official reason why Wellcome adopted the American approach was that the sale was too large to be underwritten in the conventional way by British institutions. One major City concern says this is tripe, although, of course, its view is coloured by the absence of its usual sub-underwriting fees, which are regular earners for our pension funds and insurance companies.

But the institution is probably right. As at Arfur Daley's dealership, so in the City. Anything can be sold at the right price.

When Wellcome announced its sale, the share price was above pounds 11. Obviously, the move would depress the price, but surely underwriters and sub-underwriters could have been found for the shares at, say, 935p. This represents a discount of 15 per cent and the sale would have been concluded much faster than through the book-building exercise.

The conventional route would have reduced the opportunities for short-selling in Wellcome, where the seller buys back the shares later at a lower price.

The arguments will rage but the facts are clear enough. Roger Gibbs, chairman of the Wellcome Trust, had hoped to sell many more shares, raising around pounds 4bn for what are undoubtedly good works. In the event, he received barely half that: just over pounds 2bn.

The 43 per cent of Wellcome still held by the Trust is now worth just under pounds 3bn.

Finally, Robert Fleming, SG Warburg and a handful of others in the financial community are sharing fees of pounds 75m. Quite good for selling a product with an existing market. Rather like the Escort shifters. .

But perhaps they are handing over some of the boodle to medical researchers?