Bellevue Healthcare (BBH) says that, following the redemption requests in relation to its annual redemption facility that saw some 36% of shareholders request redemption, its board has been consulting with shareholders about the annual redemption facility and now believes that the future viability of BBH will be stronger if the annual redemption facility is replaced with annual performance-related conditional tender offers and a continuation vote.
A circular published today details the proposed changes to BBH’s articles of association to bring this into effect. BBH’s board is also seeking shareholder approval to change the trust’s investment policy to raise the upper limit of the number of holdings from 35 to 45, with the aim of reducing volatility. There is also a proposal to simplify BBH’s specific return objectives that form part of its investment objective. BBH’s directors recommend shareholders vote in favour of these changes.
Background to the changes
Currently shareholders can redeem all or part of their shareholding annually, subject to the board’s discretion. However, BBH’s hefty discount has contributed to the significant level of redemption requests received during the last two years and, while elevated discounts are a sector-wide issue for UK-listed investment companies, it allowed certain investors to buy into BBH at a discount, knowing they can, each year, redeem at close to the prevailing NAV. The board says that the experience of the 2023 and 2024 redemptions shows that the redemption facility is incompatible with the interests of shareholders who invested on the basis of the company’s investment objective, which is to provide shareholders with capital growth and income over the long term. [QD comment: we agree and have been saying for some time that uncapped facilities like this leave funds a hostage to fortune if a 100% redemption or tender falls due at a time when, for example, markets are depressed or a strategy is out of favour. These events can force funds to sell stocks at depressed valuations when they should be able to take advantage of the closed end structure and look through the market noise. Given the costs involved in establishing these funds in the first place, allowing a small group of short-term investors to profit at the expense of longer-term ones does not seem to serve overall shareholders’ interests well.]
Continued use of the redemption facility as it stands impacts the long-term viability of BBH as it greatly reduces the size of the trust, driving up its ongoing charges ratio as its fixed costs are spread over a smaller asset base. These redemptions also reduce the number of shares in issue and so may adversely affect the secondary market liquidity of the shares.
Benefits of the proposals
BBH’s board has set out what it sees as the benefits of the proposals. These are listed as follows:
- Ending the Redemption Facility should help minimise the risk that the Company’s NAV is reduced to such an extent that the viability of the Company’s investment strategy and its ability to generate returns for long-term investors, and the future of the Company, are prejudiced.
- The Directors have absolute discretion to operate the Redemption Facility on any given redemption point, and to accept or decline in whole or in part any redemption request. A Conditional Tender Offer, if triggered, would be made available to all eligible shareholders and would be for up to 10% of the then issued share capital (excluding shares held in treasury).
- The Conditional Tender Offers will give shareholders the opportunity to tender some or all of their shares if the performance of the Company is not in line with its specific return objective.
- A Continuation Vote will allow shareholders to consider the future of the Company at a fixed time in the future, and may also help to minimise any discount at which the shares trade.
- The proposed amendment to the investment policy offers a more flexible approach to managing the volatility of the Company’s portfolio.
Conditional tender offers and continuation vote
BBH’s board proposes the introduction of annual performance-related conditional tender offers, with the first tender offer in early 2028, and in each year thereafter, if the company’s NAV total return fails to exceed the MSCI World Health Care Index over a three-year assessment period. The assessment period for the first conditional tender offer will be from 1 January 2025 to 31 December 2027 (with the assessment period for the second cconditional tender offer to run from 1 January 2026 to 31 December 2028). IF BBH’s NAV total return (in sterling terms) exceeds the MSCI World Health Care Index (on a net total return basis in sterling terms) over an assessment period, there will be no tender offer. If BBH’s NAV total return (in sterling terms) is not greater than that of the MSCI World Health Care Index (on a net total return basis in sterling terms) over an assessment period, then the board will put forward proposals to shareholders to undertake a tender offer to enable them to realise a proportion of their investment for cash.
The size of each conditional tender offer will be for up to 10% of the then issued share capital of the company (excluding shares held in treasury) and it is expected that any tender offer would be made within three months of the end of the relevant assessment period. Each conditional tender offer will be subject to shareholder approval and, if a conditional tender is triggered, a circular will be sent to shareholders setting out the full details.
BBH says that, although there is no formal requirement for shareholders to vote on the proposed introduction of the conditional tender offers, and the operation of the redemption facility is entirely at the discretion of the board, the board considers it appropriate to ask shareholders to approve a resolution at the General Meeting to approve amendments to the Articles to remove the detailed provisions relating to the operation of the redemption facility. The introduction of the conditional tender offers is conditional on the passing of that resolution. It adds that the introduction of the conditional tender offers will not affect the board’s current approach to discount management in terms of share buybacks. The directors believe that providing shareholders with the option to tender a proportion of their shares for cash, if the company underperforms, constitutes a pragmatic and attractive initiative, particularly if the shares were to be trading at a material discount to NAV at the time.
Proposed continuation vote
Following the consultation with shareholders referred to above, and given the proposal to replace the redemption facility with the conditional tender offers, the board believes that it would be appropriate for shareholders to be given the opportunity in the future to vote on the continuation of the company as an investment company. Accordingly, it is proposed that at the annual general meeting of the company to be held in 2030, the directors shall propose an ordinary resolution to shareholders that the company continues in existence as an investment company. If that resolution is not passed, then the directors shall, within six months of the date on which the resolution is not passed, put forward to shareholders proposals for the reconstruction, reorganisation, or winding-up of the company.
