In a stock exchange notice today (4 October), the respective boards said that if the merger is approved by shareholders, it will take place by way of reconstruction and lead to the winding up of HDIV.
Under the scheme, HDIV shareholders will be able to either rollover their investment into HHI or obtain a full and unrestricted cash exit, or a combination of both. The cash option will be offered at a discount of 1% to the HDIV net asset value per share.
The enlarged HHI, which currently holds £262m in assets, will continue to be managed by Janus Henderson under the same investment objective and policy.
David Smith will continue as the lead portfolio manager, supported by the firm’s global equity income and the fixed income teams for the bond allocation.
According to the HDIV board, the diversified income strategy envisaged for the trust at launch “had not anticipated the economic conditions which have subsequently prevailed”.
It said it has been difficult for the fund managers to take advantage of their ability to invest in loans, leading to the board being concerned about the effectiveness of the strategy in maintaining income levels and the capital value of HDIV in real terms in the future.
The diminishing size of the trust, with consequential impact on costs, returns and liquidity, was also a concern for the board, it said. HDIV currently holds £145m in assets.
The HDIV board said it had invited proposals from a number of investment companies with alternative investment processes that could offer “greater scope” to provide a more “consistent return”, as well as exploring options such as liquidation.
If shareholders rollover into HHI, the board said they will benefit from continuity with Janus Henderson, high income levels and a “strong” investment track record. HHI has outperformed the FTSE All Share index over a one, three, five and 10-year period.
HHI also offers lower fees. Management fees are 0.50% on gross assets up to £325m and 0.45% above, a fee below the 0.65% of net assets that is currently paid by HDIV shareholders.
The latest ongoing charges ratio for HHI, which would be expected to decrease after the scheme given the greater scale, is 0.84%, versus 0.98% for HDIV.
Janus Henderson has agreed to offer a contribution to the costs of the proposals of 1.25% of the value of the assets rolling over to HHI, up to a maximum of £1.1m.
The firm will also waive any fee that would otherwise be payable on termination of the HDIV investment management agreement.
Angus Macpherson, chair of HDIV, said: “HHI’s record, if it continues in the future, of capital growth, a high and growing dividend and trading at a tighter discount to NAV should also benefit shareholders.”
Jeremy Rigg, chair of HHI, added: “Supported by the Janus Henderson group, the combination will increase the size of HHI, improve the liquidity and marketability in the company’s shares and help to reduce the ongoing charges ratio by spreading costs across a larger shareholder base, which is in the interests of both existing and new shareholders.
“HHI has a strong track record of providing a high level of income for shareholders whilst also delivering long-term capital growth and the company remains committed and focused on continuing to deliver on these objectives.”
A shareholder circular setting out the details of the scheme will be sent to shareholders in December 2023. The general meetings to obtain shareholder approval are expected to be held in January 2024.
World News || Latest News || U.S. News