The former Woodford Patient Capital Trust is winding down and returning £37m to its long-suffering shareholders in a ‘tender offer’ this month. Should they sell some, all or none of their shares? The situation is not straightforward as, despite its historic problems, the investment trust has backed some valuable companies under its current managers at Schroders.
Our guide to the INOV tender offer
The £263bn investment company sector is enduring a rapid contraction with no less than 34 of 321 London-listed funds in the process of winding down and returning money to shareholders.
Amid this extensive clear-out of unwanted investments, one company stands out. It is Schroders Capital Global Innovation (INOV), the former Woodford Patient Capital Trust, which raised a then record £800m at launch ten years ago but which has dwindled to £127m largely as a result of the poor investment decisions of its former fund manager, Neil Woodford.
In February, with INOV trading under 10p, 90% below the 100p at which the stock floated in 2015, shareholders voted to discontinue the company and get back what remained of their capital. This meant the start of a managed wind-down in which the trust’s managers at Schroders will sell its assets over the next few years with the company paying the proceeds to shareholders.
Last month INOV announced the first of what is expected to be a series of ‘tender offers’ to buy shares from investors as a way of returning their money. Shareholders have just under three weeks to decide if they want to sell some, all or none of their shares as INOV looks to distribute £37m of investment gains.
The process has confused some investors so here is a guide to what is going on and how to respond.
What is a tender offer?
A tender offer is a mechanism by which a company offers to buy back a large number of its shares from investors.
Investors wishing to sell have to apply by filling in a tender form provided by the company in its circular on 19 June, or from investment platforms such as Hargreaves Lansdown and Interactive Investor. Further copies are available from the registrar Equiniti.
The deadline to tender shares is 1pm on Wednesday 23 July although the platforms will have earlier deadlines. Hargreaves Lansdown requires notification by midday on Tuesday 22 July, for example.
Investors who don’t want to sell shares should do nothing.
Why is INOV holding a tender offer?
As if often the case with tenders, INOV is proposing to pay more for its shares than their current market price. That’s an important point if you’re wondering why investors don’t just sell in the stock market? They can, they just won’t get as much.
INOV has £37m of cash from investment gains it wants to distribute to shareholders. The cash pile is bigger than expected due to the £18.7m the trust made from the $400m sale of Swiss cancer treatment provider Araris Biotech in March. This was one of the new investments Schroders made when taking over the trust in December 2019.
INOV isn’t plucking a figure out of thin air for its tender price. It is proposing to pay investors close to the net asset value (NAV) of their shares as at 31 May. NAV is the underlying investment value, excluding debt, that each share in the trust represents.
This is the first in a series of tender offers the company plans to hold as it sells assets and returns cash to shareholders before it eventually liquidates.
How much will it pay for the shares?
Although the final tender price won’t be confirmed until 25 July, the company has said that, barring unforeseen developments, it will pay 21.12p per share.
That indicative price is based on the 21.36p NAV per share at 31 May minus costs. That compares to the share price of 13.2p when the announcement was made on 19 June.
The shares have risen to 16p since then as the market sees that the fair value of the shares is finally being realised. They have traded at a steep discount to NAV since 2019 when Woodford’s main fund was suspended, unable to meet all its investors’ sales orders, and his investment business collapsed.
Dissatisfaction with the chronic discount, which reached a high of 45% last year, was the main reason INOV’s board recommended shareholders wind up the trust.
How much will I receive?
That depends on how many shares, if any, you sell.
At the indicative price of 21.12p, the £37m tender offer will buy back 21.4% of INOV’s shares.
The simplest way to think about the tender offer is that shareholders have a basic entitlement to sell 21.4% of their shares.
They can apply to sell more, or all, of their shares, but will only receive any of the excess if other shareholders decide not to sell.
The shareholder circular gives the example of someone holding 10,000 INOV shares at 13.2p each.
If they do nothing and hold on to their shares they will retain a stake worth £1,320.
If they sell their basic entitlement, Winterflood, INOV’s broker, will buy 2,142 shares for £452 cash. Their remaining stake would be worth £1,037, giving a total value of cash and shares of £1,490.
If they tendered all their shares and 10% of excess applications were accepted then, according to the company’s example, 2,927 shares would be sold. That would net them £618 cash with a remaining stake worth £934 to give a total value of £1,552.
What is the timetable?
INOV requires shareholder approval at a general meeting at 2.30pm on 10 July for the tender offer to proceed. If you want to vote you must submit your proxy form by 8 July, although platforms may set an earlier deadline. However, you don’t have to vote in the general meeting to tender your shares.
All registered shareholders at 23 July are eligible to participate in the tender offer. The result of how many shares are sold in the tender offer, the tender price and the size of the basic entitlement will be announced on 25 July. The offer will complete on 28 July with payments made through the Crest share settlement system on 30 July and cheques posted to holders of share certificates on 8 August.
What happens if I don’t sell any shares?
If you don’t sell any shares in the tender offer, then you will retain your entire holding in the company which will represent a bigger percentage of a portfolio that will be 21.4% smaller.
If you don’t participate in future tender offers, then your percentage holding will increase as INOV’s pool of assets shrinks.
Over time as the company sells more investments and returns cash to shareholders the portfolio will become concentrated in a few positions, making it riskier and more volatile. Ultimately, when the last investment is sold and the company goes into voluntary liquidation, you would receive a final cash payment. The timing of that is unknown and the amount you receive may be less than if you had sold in the tender offers.
Should I tender all my shares?
That depends on your personal view. After all that’s gone wrong with the trust and the steep share price discount, it is understandable if investors want to grab the first opportunity to sell out at net asset value. However, whether you can sell all your shares depends on how many shareholders decide not to join in the tender offer.
Investors shouldn’t be too pessimistic if they do retain a holding after the tender offer. Schroders is charged with getting the best price for its assets. Speaking on a webinar after the annual results in March, fund managers Tim Creed and Harry Raikes were positive about prospects for the portfolio now most of the legacy Woodford assets that depressed returns had either been sold or written off.
The pair were excited about the new investments Schroders had made since 2019. They said Atom Bank and Revolut, two fintech companies that accounted for 23% of the portfolio in December, planned to float on the stock market in the future. That could offer the trust an opportunity to crystallise its gains and return more cash to shareholders.
Creed described money app operator Revolut as ‘the single best venture-backed company in the UK’. It achieved an impressive $45bn valuation in a secondary share sale last year.
The eight life sciences companies Schroders had added to the portfolio were also making good progress, the managers said. That’s encouraging given three of its new biotech firms – Araris, Anthos and Carmot – with email security provider Tessian, have been sold in the past four years, generating 3.3 times more than the original investments. That multiple could yet rise to 6.3 times if the companies achieve ‘milestones’ under their new owners.
QuotedData view:
We believe there’s a case for keeping things simple and recommend investors apply to sell their basic entitlement of 21.4% of shares in the tender offer.
Given INOV’s troubled history, it makes sense to get your money out at asset value while you can, particularly as the company says the next big tender offer is not likely until 2026-27.
Following the sale of listed holdings, almost all the trust’s investments are in private, unquoted companies which adds to the risks. Moreover, Schroders is a small investor in most of the companies and so is unable to dictate the timing of disposals and exits.
That said, from the current very depressed level, there is more scope for gains for INOV shareholders than there has been for a long time. The good news is a process is underway for returning the full value of the trust’s investments.
Shareholders should take advantage of this tender offer and future distributions.
For further information, read the FAQ on Schroders’ website.
