Artemis Alpha (ATS) and Aurora (ARR) have announced this morning that their boards have agreed heads of terms for a proposed combination of the two trusts. If approved by each company’s respective shareholders, the transaction will be effected by way of a scheme of reconstruction and winding up of Artemis Alpha with the associated transfer of part of the cash, assets and undertaking of Artemis Alpha on a formula asset value FAV basis to Aurora, in exchange for the issue of new ordinary shares in Aurora. Following the transaction, it is intended that the enlarged Aurora will continue to be managed, on the same basis as it is currently, by Phoenix Asset Management Partners Limited (“Phoenix“). Aurora’s investment objective and policy will not, therefore, be amended in connection with the Proposals. The Aurora Board will also remain unchanged. In addition to approvals by existing shareholders of both trusts, regulatory and tax approvals are also required.

Both trusts have set out the following highlights of the proposals:

• Scale and enhanced profile: If no Artemis Alpha Shareholders elect, or are deemed to elect, for the Cash Option, the enlarged Aurora would, on the basis of the Aurora NAV and Artemis Alpha NAV as at 29 August 2024, have net assets of approximately £353 million, equating to an increase of approximately 64 per cent.
• Enhanced liquidity: The scale of the enlarged Aurora is expected to improve secondary market liquidity for Aurora Shareholders and Artemis Alpha Shareholders.
• Lower ongoing charges: The enlarged Aurora is expected to benefit from a lower ongoing charges ratio as a result of Aurora’s fixed costs being spread over a larger asset base.
• Manager contribution to costs: Phoenix is willing to make a material cost contribution in respect of the Proposals, set out in further detail below, which is expected to substantially offset the fixed direct transaction costs for Aurora Shareholders.
• Aurora and Artemis Alpha Shareholder support: Major Aurora Shareholders, representing approximately 31.6 per cent. of Aurora’s issued share capital as at 29 August 2024, have expressed support for the Proposals. Likewise, Artemis Alpha Shareholders, representing approximately 31.5 per cent. of Artemis Alpha’s issued share capital (excluding Artemis Alpha shares held in treasury) as at 29 August 2024, have expressed support for the Proposals.
• Overlapping portfolios: Aurora and Artemis Alpha have a number of stocks in common which, as at 29 August 2024, represented approximately 62.5 per cent. and 36.1 per cent. of the respective investment portfolios.
• Change of name: Conditional on the Scheme becoming effective, Aurora intends to change its name to Aurora UK Alpha plc.

Other considerations

Under the Scheme, Artemis Alpha Shareholders will be deemed to have elected to receive New Aurora Shares in respect of their holding in Artemis Alpha unless they elect to receive cash in respect of some or all of the Artemis Alpha shares they own.

The cash option is limited to 25% of the Artemis Alpha shares in issue (excluding treasury shares). Should total elections for the cash option exceed this 25% threshold, excess elections for the Cash Option will be scaled back into New Aurora Shares on a pro rata basis.

For every Artemis Alpha share validly elected for the cash option, Artemis Alpha Shareholders will receive cash equal to Artemis Alpha’s Residual NAV multiplied by the percentage of Artemis Alpha Shares accepted for the cash option (the cash exit percentage) less:

• a discount of 2 per cent. of such amount; and
• (ii) an illiquidity discount of 20 per cent. of the value of the unquoted part of Artemis Alpha’s portfolio that transfers to Aurora pursuant to the Scheme as at the Scheme calculation date multiplied by the Cash Exit Percentage, then divided by the aggregate number of Artemis Alpha shares validly elected for the Cash Option.

Artemis Alpha’s Residual NAV will be calculated as the gross assets of Artemis Alpha as at the Calculation Date, plus the portion of the Phoenix Contribution (as defined below) attributable to Artemis Alpha, minus:

(a) the value of the Liquidation Pool (which shall comprise:

(i) a provision sufficient to meet any outstanding known liabilities of Artemis Alpha;

(ii) a provision sufficient to meet any contingent or unknown liabilities of Artemis Alpha following its entry into liquidation, not expected to exceed £100,000; and

(iii) the value of any of Artemis Alpha’s unquoted investments that the parties agree will not transfer to Aurora pursuant to the Scheme); and

(b) the value of any dividends or other distributions which are declared prior to the Calculation Date but not paid to Artemis Alpha Shareholders nor accounted for in its NAV as at the Calculation Date.

The Proposals will be conditional upon, amongst other things, the approval by Aurora Shareholders of the issue of the New Aurora Shares at a general meeting of Aurora, and the approval of Artemis Alpha Shareholders of the Scheme at the requisite Artemis Alpha general meetings.

Artemis Alpha Shareholders will not qualify for any Aurora dividend with a record date before the date on which the Scheme becomes effective.

Cost contribution

Phoenix has agreed to contribute £750,000 towards the costs of the Proposals which will be allocated first to pay Aurora’s fixed direct costs in connection with the Proposals up to a cap of £500,000, with the balance of the Phoenix Contribution (at least £250,000) allocated to pay Artemis Alpha’s fixed direct costs in connection with the Proposals. The Phoenix Contribution will be reflected in the relevant FAV of each company and it is expected that the Phoenix Contribution will constitute a waiver of Phoenix’s future entitlement to a performance fee.

Investment manager

Separate to the Proposals, Kartik Kumar, the lead manager on Artemis Alpha, has accepted an offer from Phoenix to join its investment management team later in the year.

Substantial support from existing shareholders already indicated

ATS says that it has consulted with a number of its major shareholders who have indicated support via letters of intent for the Proposals. These shareholders represent approximately 31.5 per cent. of ATS’s issued share capital. Likewise, Aurora Shareholders representing 31.6 per cent. of Aurora’s issued share capital have expressed support for the Proposals.

Dividends

ATS intends to pay the final dividend proposed in respect of the financial year to 30 April 2024 subject to approval by Shareholders at the annual general meeting to be held on 17 October 2024. ATS says that it also intends to pay a pre-liquidation interim dividend to its shareholders of at least the minimum size sufficient to ensure it maintains investment trust status. For the avoidance of doubt, Artemis Alpha Shareholders will not qualify for any Aurora dividend with a record date before the date that the Scheme becomes effective. The New Aurora Shares issued under the Rollover Option will rank fully pari passu with the existing ordinary shares of Aurora for all dividends declared by Aurora on or after the date of their issue. Aurora does not have a fixed dividend policy. However, the board of Aurora expects to distribute substantially all of the net revenue arising from the investment portfolio. Accordingly, Aurora is expected to pay an annual dividend that may vary each year. Aurora does not intend to change this approach as a result of the Proposals.

Approvals and expected timetable

ATS will publish a circular setting out full details of the Proposals and to convene the necessary general meetings to implement the Scheme. At the same time, Aurora will publish a prospectus in connection with the issue of New Aurora Shares pursuant to the Proposals and a circular to convene a general meeting of Aurora shareholders to approve the issue of New Aurora Shares pursuant to the Proposals. It is anticipated that such shareholder documentation will be published in October 2024.

Comments from Lucy Walker, Chair of Aurora

“The Aurora Board is delighted to welcome Artemis Alpha Shareholders who will enter into an investment trust with a similar philosophy and portfolio, and the enlarged trust will benefit all shareholders through lower fees and better liquidity.”

Comments from Duncan Budge, Chairman of Artemis Alpha

“After consulting our major shareholders, the Board is pleased to propose the combination of Artemis Alpha and Aurora, which will bring together two investment companies that have long shared a high-conviction investment approach to create a larger, more attractive proposition for investors with enhanced secondary market liquidity and a lower cost ratio.”