The boards of Henderson European Focus Trust (HEFT) and Henderson EuroTrust (HNE) have signed Heads of Terms in respect of a proposed merger of interests to form Henderson European Trust plc.
HNE is being folded into HEFT using a s110 scheme. The City Code on Takeovers and Mergers is not expected to apply to the proposals.
The combined trust should have net assets of about £750m (based on valuations as at 29 February 2024), which should get it into the FTSE 250 Index. Shareholders representing 35.4% and 37.6% of the respective issued share capital of HEFT and HNE have indicated their intention to vote in favour of the recommended proposals.
The combined trust will be co-managed by Tom O’Hara and Jamie Ross, currently co-lead and lead portfolio managers of HEFT and HNE respectively, under a single mandate: to maximise total return by investing in companies predominantly listed in Europe (excluding the UK). Its focus will be on Europe’s “global champions” – large, established and well-managed businesses operating internationally but based in Europe. The trust expects to hold a concentrated list of tghe managers’ best ideas, selected with no particular style bias but with an emphasis on potential for long-term growth in the context of enduring global trends.
The recommended proposals have been structured to avoid any costs of change falling on continuing shareholders and reduce the overall ongoing charges ratio of the continuing vehicle. This has been achieved through a contribution from the manager when the recommended proposals become effective and by a reduction and waiver of fees by the manager to support the scheme.
New management fee
- 60 bps p.a. on net assets up to £500m;
- 50 bps p.a. on net assets between £500m and £1bn; and
- 45 bps p.a. on net assets in excess of £1bn.
This compares with the current structure of both HEFT and HNE of 65 bps p.a. on net assets up to £300m and 55 bps p.a. on net assets in excess of £300m.
The ongoing charges ratio should be about 0.70%, lower than HEFT’s current OCR of 0.80% and HNE’s of 0.79%.
Discount / premium management policy
The trust will introduce a five-yearly conditional performance related tender offer and will also use share buybacks and share issuance where appropriate and subject to prevailing market conditions.
The new board
The board will comprise seven directors drawn from HEFT and HNE. The board will provide an appropriate balance of experience and skills, and its composition will meet corporate governance guidelines. Succession planning and duration of service have also been taken into account in the formation of the board and it is expected that the size of the board will reduce to five directors over the next two years as those directors with the longest tenure step off the board.
Vicky Hastings, will remain as chair. The other board members will be Robin Archibald, Marco Bianconi, Melanie Blake, Katya Thomson, Stephen King and Rutger Koopmans, with thanks to Nicola Ralston, Stephen Macklow-Smith and Stephen White for retiring from the boards if the Proposals become effective.
HEFT’s tender offer / HNE’s cash exit opportunity
Prior to the implementation of the Scheme, HEFT will put forward a tender offer to HEFT shareholders for up to 5% of issued share capital, which broadly reflects the cash exit being provided for HNE shareholders under the scheme).
The tender offer will be priced at a 2% discount to formula asset value (FAV = NAV after adjusting for the costs of the proposals.
Under the scheme, HNE shareholders will be entitled to elect to receive cash in respect of part or all of their shareholding, subject to an aggregate limit of 5% of HNE’s issued share capital. This cash option will be priced at a 2% discount to HNE’s FAV.
Expected timetable
It is currently envisaged that the documentation in connection with the proposals will be sent to each company’s shareholders by the end of May 2024 with a view to convening general meetings in June 2024. The proposals are anticipated to conclude by the end of June 2024.
HNE / HEFT : Henderson to merge its two European trusts