Update: Brown Advisory US Smaller Companies (BASC) has decided to call it a day and offer shareholders a rollover into rival JPMorgan US Smaller Companies (JUSC).
Concluding a strategic review that he revealed in July, chair Stephen White said shareholders would also have the option of an uncapped cash exit at 99.25% of net asset value (NAV).
He said the proposals provided an attractive solution for shareholders wishing to retain exposure to US smaller companies through a larger investment trust with lower ongoing costs, while also providing a full cash exit for those seeking liquidity.
Saba Capital, the activist US hedge fund, with a 16% stake in BASC supports the proposals and will take cash. It has also agreed a two-year standstill with JUSC not to bring any resolutions against the company. It does not own shares in JUSC.
Both BASC and JUSC have struggled with performance in recent years. Launched in 1993, the £172m BASC has generated a 14% total investment return over five years under Brown Advisory fund managers Christopher Berrier and George Sakellaris. That’s ahead of the 9% total growth in net asset value from JUSC, a £197m trust launched in 1982 and run by Don San Jose, Daniel Percella and Jonathan Brachle at JP Morgan Asset Management.
Shares in both trusts trade at around 9% below NAV.
White said: “Throughout the strategic review, the board’s priority has been to secure the best possible outcome for all shareholders. We considered a broad range of options and potential partners, and believe the proposed combination with JUSC provides the right balance of choice and long-term opportunity.”
JUSC chair Dominic Neary said: “I believe that US smaller companies are some of the most exciting in the world, with JUSC’s investment trust structure providing a marked advantage in accessing these opportunities. There are significant benefits of this combination for all shareholders. With increased scale ever more important in the investment trust market, shareholders in the combined JUSC will benefit from an enlarged vehicle, with improved liquidity and lower ongoing costs.”
In early trading, JUSC shares dipped 1.1% to 417.3p and BASC rose 2.2% to £16.45.
Our view
Matthew Read, senior analyst at QuotedData, said: “When BASC launched its strategic review in July, we questioned whether it could satisfy shareholders wanting a substantial cash exit while retaining the scale needed to remain viable. The board appears to have reached much the same conclusion. Its solution looks sensible: shareholders wanting out can receive cash at just a 0.75% discount to residual NAV, while those who still believe in the US smaller companies opportunity can roll into JUSC without triggering an immediate capital gains tax liability.
“For those rolling over, the combination should create a larger, more liquid and cheaper trust, with BASC shareholders expected to save around 20 basis points a year in costs. Adding a conditional five-yearly tender offer to JUSC’s existing discount controls is another welcome measure. This may not be the outcome BASC’s board envisaged when the review began, but it looks like a pragmatic solution that gives shareholders a genuine choice while avoiding the risk of leaving behind a subscale trust.”
