Update: HICL Infrastructure (HICL) has pulled out of its proposed merger with InfraRed Capital stable mate The Renewables Infrastructure Group (TRIG) following an outcry from many shareholders.
In a statement HICL said: “Both boards remain convinced of the strategic rationale for the combination. However, following broad engagement with shareholders, the HICL board determined that it cannot progress the transaction without a substantial majority of support from its own investors.
“Each company remains well positioned as an independent business, with high-quality portfolios, strong management teams, and clear strategies for delivering long-term value to investors,” HICL said.
TRIG said it regretted “that investors will not have the opportunity to vote on the creation of the largest listed UK infrastructure investment company and the other benefits that the board believes the combination could have brought.”
Relieved investors pushed shares in £2.1bn HICL 3.5% higher to 117.20, close to the price before the £5.3bn merger proposal was announced and narrowing its 23% discount to net asset value (NAV).
Shares in £1.8bn TRIG slid 3.8% to 71.4p, widening its 32% discount to NAV.
Chair Richard Morse said TRIG’s focus would return to delivering TRIG’s standalone strategy, which he said was “attractive” although the attempt to forge a merger with HICL indicates anxiety over its low share price rating.
“TRIG is a well-established platform with high quality assets, a competitive pipeline of opportunities, and deep renewables and energy storage expertise. We are uniquely placed to capitalise on the demand growth for low carbon, reliable power and to capture the commercial opportunities as economies across the UK and Europe electrify and decarbonise. Doing so will allow us to deliver sustainable value and growth for our shareholders, with whom we will continue to engage on the path ahead,” said Morse.
The u-turn is an embarrassment for both companies, just two weeks after they unveiled the merger proposal aimed at re-invigorating their investment propositions as a single point of entry to the “full spectrum of infrastructure opportunities”.
Although wealth managers Brewin Dolphin and Rathbones, which hold stakes in both companies, were thought to have been receptive to the idea, other institutions that only held HICL expressed alarm at the dilution of its “core” infrastructure from adding TRIG’s wind power and battery storage assets to its portfolio.
Lead dissenter CG Asset Management, manager of Capital Gearing Trust (CGT), gained 11 signatories for its campaign against the merger. It and other critics, including fund management group M&G, said the proposal lacked strategic rationale and claimed it was motivated by InfraRed’s desire to avoid losing TRIG’s assets if it failed a continuation vote next year.
Winterflood analyst Ashley Thomas expected both companies to consider consolidation opportunities in their areas given the benefits of increased scale cited by their boards. “Given TRIG’s dividend per share was expected to be reduced by c15% under the combination proposal, there may also be increased focus on this fund’s future dividend policy.”
Stifel analyst Iain Scouller said: “If any potential bidders are now looking to take advantage of the vacuum that now arises following the abandonment of the merger, they are likely to reveal their hand fairly quickly.”
Our view
James Carthew, head of investment company research at QuotedData, said: “We are pleased to see this morning’s announcement. However, HICL shareholders will still be wondering if they have the right board and TRIG’s continuation vote will be back on with, perhaps, less chance of success. As I said at the outset, I believe both companies will be attracting attention from third parties in the wake of this.”
