The boards of JPMorgan Elect and JPMorgan Global Growth and Income have signed Heads of Terms in respect of a proposed merger of the two companies. The merger will be effected by way of a scheme of reconstruction of Elect. It is expected that the combination will be completed by the end of the current calendar year.
The merger needs to be approved by shareholders of both trusts. It will be implemented through a scheme of reconstruction under section 110 of the Insolvency Act, resulting in the voluntary liquidation of Elect. 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 proposals. However, the proposals will be subject to other regulatory and tax approvals.
Managed Income (JPEI) assets held in this portfolio will be realised as soon as practicable prior to the point of liquidation and transitioned into assets in line with JGGI’s current investment policy. These assets will then be transferred to JGGI, with Managed Income shareholders receiving new JGGI ordinary shares. The same would apply to Managed Cash (JPEC) assets.
However, within the Managed Growth (JPE) portfolio there is an element of less liquid investments. So Managed Growth investors will get new JPMorgan Global Growth and Income C shares in respect of a separate pool of assets. The C share portfolio will be realised over time on an orderly basis and transitioned in line with the current JGGI investment policy. Once this process is complete, the C shares will be converted into new ordinary shares on an NAV for NAV basis.
Ahead of this process, holders of all three classes can elect to switch into one of the other classes of Growth, Income and Cash. Anyone who ends up holding Cash shares can opt to cash these in rather than swap them for JPMorgan Global Growth and Income shares – this is the cash alternative/redemption opportunity option for this deal.
The conversion period closes on 15 November 2022.
Benefits
- Scale: This would be the second merger that JGGI has undertaken in the past twelve months and the enlarged company could have net assets in excess of £1.7bn (based on valuations as at 25 October 2022). The scale of the combined company should improve secondary market liquidity for the company’s shareholders and will allow for potential cost efficiencies;
- Lower management fee/ongoing charges: JGGI has a tiered management fee – more assets equals a lower average fee. By way of illustration, based on valuations as at 25 October 2022, the initial weighted average management fee would be 0.46% of NAV;
- Diversified shareholder base;
- Cost contribution from JPMorgan: JPMorgan, manager of both companies, has agreed to make a cost contribution in respect of the proposals, reducing the effective implementation costs for both companies.
The announcement also points to JGGI’s five-year returns (+11.2% annualised on NAV versus 8.4% for the MSCI AC World Index in Sterling) and its dividend policy of paying out at least 4% of JGGI’s NAV at the end of the preceding financial year. JGGI has announced that in relation to the year commencing 1 July 2022, it intends to pay dividends totalling 17p (4.25p per quarter).
Costs
Each party intends to bear its own costs. JPMorgan, has agreed to make a contribution to the costs of the scheme equal to eight months of the incremental ongoing management fee payable to JPMorgan by JGGI, calculated on the NAV of assets transferring to JGGI . An adjustment will be made to the respective formula asset value (FAV) of each company to reflect this contribution, which will be split 65% to Elect and 35% to JGGI, to reflect the expected costs to be incurred by each company. All costs borne by Elect shareholders will be split amongst each share class based on the NAV of each share class.
Board structure
One of Elect’s directors is expected to be appointed as a non-executive director of JGGI.
Dividends
Elect shareholders (except Managed Cash shareholders, where there is unlikely to be any significant net income to distribute in that share class) are expected to receive a dividend on their existing shares payable prior to the point of liquidation, and will not get JGGI’s second interim dividend, expected to be declared in November 2022 and paid in January 2023.
Expected timetable
It is currently envisaged that a circular and notices of general meetings and class meetings setting out the details of the scheme will be sent to shareholders, and that a prospectus will be published by JGGI by the end of November 2022. The combination should be completed by the end of the current calendar year.
[It is a shame to see JPMorgan Elect disappear. We always rather liked the concept of these multi strategy trusts that allowed investors to switch between strategies without triggering a disposal for capital gains. However, for whatever reason, they did not really capture the imagination of investors. Invesco Perpetual still has one if you like the sound of the idea.]
JPE / JPEI / JPEC / JGGI : JPMorgan Elect to be absorbed by JPMorgan Global Growth and Income