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Dunedin Smaller merging with Standard Life UK Smaller

Standard Life UK Smaller Companies - outperformance, merger and lower fees 1

Dunedin Smaller merging with Standard Life UK Smaller – The board of Dunedin Smaller Companies Investment Trust has undertaken a strategic review of the company and its position in the UK smaller companies sector.  The Board is aware that the company’s size and the secondary market liquidity in its shares make it challenging to attract new investors and have contributed to the discount.  In addition, the recent merger of Aberdeen Asset Management PLC with Standard Life plc has resulted in the company being managed alongside a company with a very similar UK smaller companies mandate. As a consequence of these factors, the Board decided to undertake the strategic review.

Having considered a number of options and following consultation with the company’s largest shareholders,  the company has agreed, in principle, the terms of a merger with Standard Life UK Smaller Companies Trust.

The merger would provide shareholders with an investment in a significantly larger investment trust, with a strong investment track record, a stronger rating, a robust discount control mechanism and substantially greater secondary market liquidity, all of which should appeal to a broader range of investors.  In particular, the board believes that a merger would result in a significant increase in valuation  – over the 12 months ended 19 June 2018, the shares of the company and of SLS traded at average discounts of -17.4% and -3.8% respectively.

The merger would be subject to, amongst other things, approval by the shareholders of both trusts.

The directors expect to declare, pre-merger, a final interim dividend.  Although the merger is expected to result in a reduction in the aggregate annual dividends received by Dunedin Smaller’s shareholders in the medium term, the final interim dividend is expected to be at least equivalent to the aggregate reduction for the 12 months following the merger.

James Barnes, the chairman, said: “Dunedin Smaller Companies Trust’s size and the secondary market liquidity in its shares makes it challenging to attract new investors.  The proposed merger with Standard Life UK Smaller Companies Trust will resolve these issues, creating a merged trust with assets of over GBP550m and substantially greater secondary market liquidity.  As Standard Life UK Smaller Companies Trust has consistently had a substantially stronger rating than the company, the board believes that the merger will result in the company’s shareholders benefiting from a significant increase in the market value of their investment.”

For Standard Life UK Smaller Companies Trust,  the proposed merger would increase the assets of the company to over GBP550 million. Following the merger it is intended that the enlarged portfolio will continue to be managed using the investment process developed by Harry Nimmo that has served the company well since 2003.

Allister Langlands, chairman of SLS, commented: “We are delighted to announce our proposed merger with Dunedin and we believe that this reflects the excellent performance record of Harry Nimmo and his team.  The merger with Dunedin will benefit the company’s shareholders, through increased scale, a reduction in the ongoing charges ratio and increased liquidity. This is the second merger that the company has undertaken in the last 10 years and demonstrates the board’s intention to grow the company by a combination of performance and carefully considered corporate activity.”

[QD comment: Mergers are rare in the sector but are usually good news for shareholders as they create larger, more liquid and more efficient trusts. On charges,  Dunedin Smaller Companies’ ongoing charges ratio is lower than Standard Life UK Smaller’s (0.77% versus 1.08%).  Standard Life UK Smaller’s management fee has a tiered structure with a fee of 0.85% on the first £250m of assets and 0.65% on the balance and so its ongoing charges ratio should fall. Dunedin Smaller’s managers charged 0.4% plus a performance fee.]

DNDL / SLS : Dunedin Smaller merging with Standard Life UK Smaller

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