The board of The Independent Investment Trust has agreed heads of terms with the board of Monks Investment Trust to combine the companies by way of a scheme of reconstruction under Section 110 of the Insolvency Act 1986 and a voluntary winding up of Independent. Independent shareholders will be able to elect either to receive new ordinary shares issued by Monks and / or realise part, or all, of their holding for cash.
Background
Max Ward, Independent’s managing director and full-time portfolio manager, wants to retire. Given the impact that Max’s retirement would have on the company, the board carefully considered the various options available and decided that a combination with Monks offered the greatest benefit to shareholders.
The statement says that the Global Alpha team within Baillie Gifford, which took over the management of Monks in 2015, has a strong long term record. It also feels that the wide diversification of the Monks portfolio, which the Independent board believe is beyond Independent’s resources, is an attractive feature, given an uncertain geopolitical background which may prove persistent. The scale of Monks, with assets of £2,495m at 30 June 2022 and no dominant shareholders, allows for a liquid market in its shares.
Benefits of the scheme to IIT shareholders
The board believes that the scheme has a number of benefits for Independent’s shareholders:
- Ability to stay invested in a tax efficient manner: As part of the scheme, Independent’s shareholders will have the option of a rollover into Monks without triggering capital gains tax.
- Opportunity for full cash realisation: An unlimited cash exit option will give shareholders the option to realise all or part of their holding at a level near to liquidation value should they so wish.
- Attractive look-through value for shareholders: Monks’s shares currently trade at a tighter discount to their underlying net asset value when compared to Independent
- Continuity of investment proposition: shareholders will be able to maintain exposure to similar investment objectives but with a more diversified portfolio.
- Baillie Gifford cost contribution: Baillie Gifford will offer a cost contribution by way of a six month fee waiver based on the quantum of assets rolling over to Monks. This will be for the benefit of all shareholders of the enlarged Monks.
- Increase in scale: An enlarged Monks will allow fixed costs to be spread over a larger cost base, alongside improving liquidity and aiding marketing.
Benefits to Monks shareholders
Shareholders in Monks will benefit from:
- an increase in scale, allowing the enlarged Monks to spread fixed costs over a larger cost base, while also improving liquidity and aiding marketing;
- an inflow of cash to Monks’s portfolio which can be redeployed at a potentially advantageous stage of the performance, discount and market cycles;
- the addition to Monks’s portfolio of a ready-assembled collection of UK growth stocks which the managers have assessed for potential upside and portfolio fit.
Further details
The scheme will be undertaken on a formula asset value (FAV) to FAV basis. Each side will take into account their own respective costs, with the exception of stamp duty and listing fees which will be paid by the enlarged Monks, and any dividends declared but not paid. The uplift in FAV delivered by the cash option (because that is being offered at a discount to FAV – see below) will be for the benefit of the Independent rollover shareholders.
The cash exit facility is on the basis of the Independent FAV, less 2%. For the avoidance of doubt, there will be no limit on the number of Independent shares which may be elected for the cash option.
The scheme is subject to approval by both sets of shareholders, in addition to regulatory and tax approvals. In accordance with customary practice for such transactions involving investment trusts, the City Code on Takeovers and Mergers is not expected to apply to the scheme. A timetable and further details will be announced in due course.
Directors rolling over
Independent’s directors, who own about 24.3% of the company’s equity, all intend to elect for the rollover option to the full extent of their holdings and will also recommend the resolutions which will be put to shareholders proposing the scheme.
The company will pay a pre-liquidation interim dividend to the extent required in order to maintain investment trust status.
Board
The board of Monks currently comprises five directors all of whom are non-executive. It has been agreed that none of the Independent directors will be joining the Monks board.
Expected timetable
It is currently envisaged that a shareholder circular and notice of the general meeting setting out the details of the scheme and seeking shareholder approval for the cash exit and liquidation will be sent to shareholders in late September 2022. The relevant general meetings are expected to be held in October 2022.
[We think that this is an elegant solution to the situation and one that will likely be welcomed by Independent’s shareholders.]
IIT / MNKS : Independent and Monks combine forces