View from City Road: Green shoe is a poor fit

WELLCOME'S shares, having bumped along at about 800p since its flotation was completed on 25 July, suddenly plunged to 782p yesterday. But that was not because investors had been frightened by yet another Aids rumour, or because Wellcome was joining in the market's fall. All that happened was that Robert Fleming, global co- ordinator of the issue, dropped the price at which it would buy Wellcome shares from 800p - the issue price - to 780p.

Fleming claims that the 'green shoe' arrangement - under which 40 million extra shares were allocated but can be bought back until 26 August - was always designed to stabilise rather than support the share price. The market thinks otherwise.

One institution decided to sell 10 million Wellcome shares to satisfy a liquidity requirement, secure in the knowledge that there was a buyer at 800p and that it was likely to be able to buy them back more cheaply when the green shoe expired.

The drop in the price at which Fleming will buy the shares is designed to discourage others from following suit. It points out that, had Wellcome performed in line with the market - which has fallen 2.8 per cent since the sale was completed - its shares would now be at 777.6p. It insists it does not want to be the only buyer in the market and hints that it will drop its purchase price again if necessary.

Fleming was hoping that the 30-day stabilisation period would be long enough to settle the market, but it reckoned without a plummeting stock market. The affair raises questions about the efficacy of a green shoe in such markets. And it leaves investors no wiser about the right price for Wellcome.