The boards of Threadneedle UK Select Trust (UKT) and Henderson High Income Trust (HHI) have both made announcements regarding proposals to wind up Threadneedle UK Select Trustand roll-over into Henderson High Income Trust. Threadneedle UK Select faces a continuation vote at its forthcoming AGM and its Board says that it has been reviewing the options available to grow UKT to a credible and sustainable size and to reduce the discount at which its shares have traded (an average discount of 13.0% for the last 12 months and 8.7% for the last three years). UKT’s board says that it reached the conclusion that UKT, in its current form, is not able to continue and so undertook a review of potential merger candidates. Following a beauty parade process, with a shortlist of suitable candidates, UKT’s board has decided to recommend a merger with HHI.
UKT’s board says that it has agreed heads of terms with HHI’s and Henderson Investment Funds Limited (“Henderson”) in respect of a future merger with HHI to be effected by way of a reconstruction and winding up of UKT. UKT’s board says that its shareholders will also be offered the opportunity to exit their investment for cash at close to net asset value.
In terms of benefits from the proposals, UKT’s board says that the focus of HHI is on investing in a prudently diversified selection of both well known and smaller companies to provide investors with a high dividend income stream while also maintaining the prospect of capital growth. It point to HHI’s track record of performance in recent years. Over the past five years, HHI has generated an annualised total return for its shareholders of 12.9% and, as at 15 March 2017, has a dividend yield of 4.9 per cent. Over the past three years, the shares have traded at an average premium to the HHI net asset value of 1.95% per cent and, over the past twelve months, have traded at an average premium to the HHI NAV of 0.86 per cent. HHI’s shares are currently trading at a premium of approximately one per cent. to the HHI NAV. UKT’s board also say that, through a payment equal to 18 months of base management fee on assets rolled over, Henderson is making a significant contribution to the costs of the Proposals, which will enable UKT’s shareholders to roll-over their investment without the payment of any premium to the HHI NAV on the new shares.
UKT’s board says that it believes the proposals are in shareholders best interests as: HHI has a market capitalisation in excess of £210 million, thereby offering considerably greater liquidity than exists in the Company’s shares; the proposals provide UKT shareholders with a cost effective opportunity to invest in a company with a strong long-term performance track record, an attractive dividend yield and shares that are trading at a premium to net asset value; the proposals offer shareholders access to what UKT’s board describes as a leading, highly experienced investment trust manager, with specialist capabilities in relation to UK equity income and a dedicated 18-strong investment trust team; HHI has a significantly lower ongoing charge ratio than the Company due to its increased scale; and the cash exit will be available to all shareholders at close to net asset value compared to the average discount of 13.0% over the past twelve months.
Under the Scheme, eligible UKT shareholders will be entitled to elect to receive ordinary shares to be issued by HHI for nil premium to the HHI NAV and/or to receive cash distributions. There will be no restriction on UKT shareholders’ ability to elect for the Cash Option although UKT shareholders who fail to make an election will be deemed to have elected for the Rollover Option. Each party intends to bear its own costs (including in the event that the Proposals do not become effective), net of any contribution from Henderson or its group to UKT and HHI. Further details of the Scheme will be set out in the circular to be posted to UKT shareholders in due course. UKt says that the relevant general meetings are expected to be convened to be held in June 2017 and the Scheme is expected to become effective by the end of June 2017.
Threadneedle UK Select proposes merger with Henderson High Income Trust : UKT, HHI