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Strategic Equity Capital shares corporate update as it declines Odyssean’s combination offer

Strategic Equity Capital shares corporate update as it declines Odyssean’s combination offer – Following Strategic Equity Capital’s (SEC) announcement on 23 December 2021 that it had received a proposal from the board of Odyssean Investment Trust (OIT) concerning a proposed combination of the two companies, the board has today confirmed it will not be proceeding with further discussions regarding this, and instead has announced a series of proposals.

The company will seek to return cash to shareholders with a focus on reducing the discount to NAV at which the company’s ordinary shares trade. Subject to shareholder approval, it is proposed that this will be effected through:

  • The implementation of a tender offer for up to 10% of SEC’s share capital. The initial tender offer will be at net asset value less costs and will replace the previously announced tender offer due to be completed in November 2022 which was to be implemented at a 3% discount to NAV (less costs).
  • Following the completion of this initial tender offer, the implementation of a share buyback programme for up to an additional 9% of current NAV with shares repurchased during the 2022 calendar year at a discount to NAV of greater than 5%.
  • A new buyback policy will be put in place in order to return 50 per cent. of proceeds from profitable realisations, at greater than a 5% discount on an ongoing basis, in each financial year, commencing in the financial year ending 30 June 2023. If the sharers are trading narrower than a 5% discount, the cash will be reinvested in the portfolio to minimise cash drag.
  • A commitment by Gresham House to use £5m of its cash resources to purchase shares by June 2023 at greater than a 5% discount.
  • An ongoing commitment by the manager (GHAM) to reinvest 50% of its management fee per quarter in shares, if the shares trade at an average discount of greater than 5% for the quarter.
  • The deferral of the continuation resolutions that would otherwise be proposed at the company’s annual general meetings in 2022, 2023 and 2024 in favour of the implementation of a 100% realisation opportunity for shareholders in 2025, the structure and timing of which will be communicated by the board in due course.

Following the appointment of GHAM, SEC implemented a strategy to maximise engagement opportunities and is now focused on investments that have a market capitalisation in the region of £100m to £300m at the point of entry. The board believes that this strategy remains consistent with the original ethos of SEC and provides the potential for outperformance over the long term, with investors continuing to have access the manager’s investment track record as well as the substantial public and private equity resources at GHAM.

The discount at which the shares have traded has been a source of frustration to the board and it has taken significant steps to address this, with an increased focus on marketing of the company. While these measures are still at an early stage, the board believes they will be significantly enhanced by adoption of the proposals.

Gresham House, GHAM and shareholders representing 26.4% of the issued share capital of SEC have indicated their support for the proposals.

Richard Hills, chairman of SEC, commented: “Ken is an excellent fund manager with an impressive long-term track record. The board believes the proposals will strengthen the company’s investment proposition and benefit shareholders, who have already begun to see encouraging results and NAV performance since Ken took over managing the company’s investments in September 2020.

The initial tender offer and the share buyback programme are subject to shareholder approval. Further details regarding the 2025 realisation opportunity will be published by the board closer to the time

[So under these proposals, shareholders that are not happy with Strategic Equity Capital’s approach can exit the trust on attractive terms. The trust should shift to trading close to a 5% discount. The managers might at last get to focus a bit more on the long term, rather than being continually worried that the portfolio is about to be snatched from them at any moment. Now we have to wait to see what Odyssean’s next move will be. We note that, on today’s numbers, Strategic Equity Capital has outperformed Odyssean over the past 12 months in NAV terms.]

SEC : Strategic Equity Capital shares corporate update as it declines Odyssean’s combination offer

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