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New Invesco merger proposals announced

New Invesco merger proposals announced – City Merchants High Yield Trust announced on 1 March 2021 that it had signed Heads of Terms with the Board of Invesco Enhanced Income for a proposed merger. Now more details have been announced.

It is proposed that the enlarged entity will be renamed Invesco Bond Income Plus Limited (“BIPS”) which, based on the existing net assets of CMHY and IPE, would have net assets in excess of £300m. A resolution to change the name of the company will be put to shareholders at a meeting being called to approve the transaction. The current portfolio manager of both CMHY and IPE, Rhys Davies, will continue as the portfolio manager of BIPS.

The Board believes that the Proposals have a number of benefits for CMHY shareholders:

  • Greater scale through the combination of similar investment portfolios: CMHY and IPE are managed by the same fund management company and investment manager and with a similar investment style. Rhys Davies currently manages both companies’ portfolios with a good track record and does so with a similar investment objective of high income and a focus on high-yield fixed-interest securities. There is a high degree of overlap between the two investment portfolios.
  • Lower management fee arrangements: In connection with the Proposals, it has been agreed with Invesco that the management fee will be reduced to an annual amount equal to 0.65 per cent of the total assets less current liabilities to reflect the larger size of the Enlarged Company. This is a reduction from the current annual management fee payable by CMHY of 0.75 per cent of total assets less current liabilities. Following the merger, the administration fee of £22,500 (plus Retail Price Index) currently payable by the Company to Invesco will be removed and the Company will pay an annual marketing fee of £45,000 to Invesco.
  • Lower ongoing charges: In addition to the change in management fee arrangements, the other costs of CMHY will be spread across a larger asset base resulting in further economies of scale and a reduction in ongoing charges ratio.
  • Potential improved liquidity: The Board expects that the Enlarged Company will benefit from greater liquidity in its shares.
  • Potential for improved share price rating: The Board believes that the above benefits should assist the shares in maintaining an improved rating as the greater scale of the Enlarged Company is expected to result in broader market appeal.

Dividends

In recent years, the company has paid an annual dividend of 10.0p by way of four quarterly payments of 2.5p. The board proposes that the enlarged company adopts a dividend policy to target an annualised dividend of 11p over a three year period following the implementation of the scheme by way of 12 quarterly dividend payments of 2.75p. The first of these dividends is the company’s second interim dividend for the year ending 31 December 2021, which is expected to be declared in June 2021.

It is anticipated that dividends will be substantially covered by net income from the portfolio, although the enlarged company will support the target dividend over this period through the use of revenue and capital reserves if necessary.

Board

Kate Bolsover and Christine Johnson, the existing chairman and one of IPE’s other directors, will join the new board. Stuart McMaster will step down. The board of BIPS will comprise six non-executive directors all of whom will be independent of the AIFM and the investment manager. Timothy Scholefield will be the chairman and Kate Bolsover shall be appointed as senior independent director. They are both directors of Fidelity Asian Values. However, Timothy Scholefield does not intend to stand for re-election to the board of Fidelity Asian Values at the annual general meeting to be held in December 2021. [Having two directors that also sit together on other boards is frowned upon, and, superficially, this fixes the problem. However, the idea was to prevent a cosy club of directors forming that appoint each other to the boards of the companies that they sit on. This clearly isn’t the case here and Timothy Schoefield leaving the Fidelity Asian Values board seems a bit like overkill.]

Gearing

This will go from 2% to 10%.

Timetable

Ex-dividend date for First Interim Dividend to Shareholders 22 April 2021
Record Date for First Interim Dividend to Shareholders 23 April 2021
Calculation Date in relation to the Scheme 5.00 p.m. on 14 May 2021
Latest time and date for receipt of Forms of Proxy 9.30 a.m. on 17 May 2021
General Meeting 9.30 a.m. on 19 May 2021
Effective date for implementation of the Scheme 19 May 2021
Dealings in New Shares commence 8.00 a.m. on 20 May 2021

 

CMHY / IPE : New Invesco merger proposals announced

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