Change of Fund Manager

RNS Number : 9236V

Throgmorton Trust PLC

04 June 2008

 



The Throgmorton Trust PLC

CHANGE OF FUND MANAGER, MODIFIED INVESTMENT POLICY, 40% TENDER OFFER AND DISCOUNT CONTROL MECHANISM

As announced on 17 April 2008 the Board of The Throgmorton Trust PLC ('Throgmorton' or the 'Trust') has conducted an extensive review of its options going forward. This followed a proposal from Gartmore Growth Opportunities Plc ('Gartmore Growth') regarding a possible merger with the Trust. In conducting its review the Board has focused on selecting an experienced investment manager with strong capabilities in the smaller companies sector, and on its stated intentions of introducing robust discount controls together with the need to ensure greater liquidity in the Trust's shares.  

The Board's review included examining proposals from eight interested parties which followed contact with 11 fund management groups. 

In reviewing the options the Board has sought to balance the interests of all shareholders including those who wish to remain invested in Throgmorton and who are keen for the Trust to continue to produce attractive returns through exposure to smaller companies, and those shareholders who are seeking to sell all or part of their investment. 

Having reviewed the Gartmore Growth proposal and other options, the Board has decided to reject the Gartmore Growth proposal on the grounds of performance record, the high costs of Gartmore's proposal for Throgmorton's shareholders and some adverse tax implications of the Gartmore redemption structure for private client shareholders. 

The Board recognises and appreciates the management provided by AXA Framlington for the Trust. AXA Framlington submitted a strong proposal in support of their continued management and a restructuring of the Trust, however, the Board has chosen to adopt a differentiated and innovative approach to the Trust's future.

The Board has concluded that it will seek, subject where necessary to Shareholder approval, to implement the following proposals (the 'Proposals'):

• Appointment of BlackRock Investment Management (UK) Limited ('BlackRock') as the Trust's investment manager;

• Adoption of a modified and innovative Investment Policy to allow the Trust to have up to 30 per cent. of its net assets invested in a portfolio of contracts for difference ('CFD') to provide both long and short exposure;

• An initial Tender Offer for up to 40 per cent. of the Trust's issued share capital on a tender pool basis with a 2 per cent. exit charge;

• Ongoing Discount Control involving regular tender offers and share buybacks; and

• BlackRock to contribute to the costs of the Proposals by way of a management fee waiver.

Commenting on the Proposals, Richard Bernays, Chairman of Throgmorton, said:

'Having carefully considered the options available, we believe these proposals from BlackRock give shareholders the opportunity to benefit from the very best of current fund management practice.

'BlackRock has an excellent record in the smaller companies sector.  Using contracts for difference is an innovative approach to managing assets of a UK investment trust and is appealing in maximising returns for shareholders through the market cycle. The tender offer enables investors to sell a significant portion of their holding should they choose to. And the adoption of a proven discount protection mechanism will, we believe, deliver superior shareholder value in the years to come.'

Benefits of the Proposals

The Directors believe that the Proposals are in the best interests of shareholders as a whole. The Proposals will:

• Provide access to highly experienced BlackRock fund managers, Mike Prentis and Richard Plackett, who have proven records in long and short investment in the small cap sector;

• Reposition the Trust as a differentiated investment proposition in the smaller companies sector with the potential to outperform through the use of modern portfolio management techniques, including shorting;

• Provide shareholders wishing to sell a portion of their investment with an opportunity to do so;

• Enhance net asset value (NAV) per share for those shareholders remaining invested as the 2 per cent. exit charge will accrue to the NAV of the Trust; 

• Implement ongoing discount controls to assist the Trust in reducing the volatility of the discount and increasing the NAV per share over time;

• Avoid a costly and time-consuming merger or reconstruction; and

• Be implemented in such a way that BlackRock will contribute to the costs of the Proposals.

Appointment of BlackRock as the Trust's investment manager

As part of the Proposals, BlackRock will be appointed as soon as practicable as investment manager of Throgmorton.  The Trust will be jointly managed by Mike Prentis, manager of BlackRock Smaller Companies Trust plc, and Richard Plackett, manager of BlackRock UK Emerging Companies Hedge Fund and head of BlackRock's UK small/mid cap team. 

On implementation of the Proposals the CFD portfolio will be established. It is intended that the management fee will be a base management fee of 0.70 per cent. per annum of value at risk (i.e the net asset value of the long-only portfolio plus the gross value of the underlying equities, long and short, to which the CFD portfolio is exposed) and a performance fee of 12.5 per cent. of any NAV outperformance against the Trust's new benchmark: the Hoare Govett Smaller Companies plus AIM (ex. Investment Companies) Index. The performance fee will be subject to a high watermark set relative to the benchmark and will be capped at 4.99 per cent of the Trust's net assets in respect of any performance period. Further details of the fees will be outlined in a circular which will be sent to shareholders as soon as practicable in connection with the Proposals.

BlackRock has agreed to contribute to the costs of the Proposals, including the costs of terminating the existing management agreement with AXA Framlington, by way of a management fee waiver.  Notice of termination of the existing management agreement has been given to AXA Framlington.

Investment Policy

The Board's intention is to retain the smaller companies investment objective of the Trust, whilst modifying its investment strategy to allow it to have a proportion of its assets invested in short positions. It is proposed that the Trust's Investment Policy be amended to allow for up to 30 per cent. of the Trust's net assets to be invested in CFDs to provide long and short exposure to the shares of UK smaller companies. The Trust will adopt the Hoare Govett Smaller Companies plus AIM (ex. Investment Companies) Index as its benchmark.

It is intended that Throgmorton's equity exposure will generally vary between 70 per cent. and 110 per cent. of net assets depending on the managers' view of the market and the individual stock opportunities available to them.  This will be achieved by investing up to 100 per cent of the net assets of the Trust in a portfolio of UK smaller company equities and up to 30 per cent. of the Trust's net assets in CFDs.

The Board believes that this strategy will continue to offer investors the upside potential of long term investment in UK smaller companies whilst harnessing the best aspects of modern portfolio diversification. The fund managers bring proven expertise in managing long equity funds and funds with the capacity to short stocks.

BlackRock Smaller Companies Trust, managed by Mike Prentis, has achieved NAV total returns of 
-11.9 per cent. over one year, 63.0 per cent. over three years and 203.6 per cent. over five years (Source: BlackRock as at 30 April 2008). It is the second best performing smaller companies investment trust over five years (Source: JPM Cazenove). 

Tender offer

The Board has decided to implement a tender offer for up to 40 per cent of the Trust's outstanding issued share capital (the 'Tender Offer').  The Tender Offer will be conditional on obtaining the approval of shareholders at an Extraordinary General Meeting. 

The Tender Offer will be conducted on a tender pool basis. This means that all of the Trust's assets and liabilities will be split pro rata, in accordance with the level of successful tenders, into a tender pool (the 'Tender Pool') and a continuing pool. The Tender Pool assets will be sold and the liabilities (including a 2 per cent exit charge) settled and the net cash proceeds will be paid to shareholders who successfully tendered their shares. 

The Tender Pool will also bear the costs and expenses relating to the Tender Offer, including the costs of the Tender Offer, the costs of realising the assets in the Tender Pool and any stamp duty payable. Shareholders who successfully tender will receive a pro rata share of the net proceeds of the Tender Pool.

Ongoing discount control policy

The Directors believe it is important to shareholders that the shares trade in a narrow range around their prevailing Net Asset Value. The Board believes this is best achieved by a commitment to ongoing marketing combined with the use of regular tender offers and the active use of share buy-back powers. The Board anticipates that the combination of effective marketing by BlackRock, a discount protection mechanism provided by regular tender offers and the facility to buy back shares in the market should result in the shares trading at a level much closer to NAV over time.

Six-monthly discretionary tender offers

The Directors believe that the modification to the investment policy and the differentiation of the Trust from its peers should, in itself, result in a reduction of both NAV and discount volatility in Throgmorton and an overall narrowing of the discount to NAV. However, the Board wishes to ensure that it has sufficient discount controls in place to maintain a narrow discount over the long term. The Directors propose to seek Shareholder authority for the Board to implement regular tender offers on a discretionary basis. The Directors will monitor the Trust's discount to NAV and, in the event that the shares are trading at a prolonged or significant discount to NAV, will have the power to operate tender offers on a six-monthly basis.  Subject to certain limitations and the Directors exercising their discretion to operate the tender offers, Shareholders may tender for purchase all or part of their holdings of shares for cash.  

It is the Directors' intention that each tender offer will be for a maximum of 20 per cent. in aggregate of the shares in issue as at the relevant tender offer calculation date. Such tenders will be effected on the same basis as the Tender Offer with a tender pool realisation and a 2 per cent. exit charge.

Renewal of these regular tender authorities will be sought at each Annual General Meeting.

Repurchase of shares

The Directors will continue to consider repurchasing shares in the market if they believe it to be in shareholders' interests and as a means of correcting any imbalance between supply of and demand for the Shares.

Any purchase of shares by the Trust will be in accordance with its Articles of Association and the Listing Rules of the UKLA in force at the time. A resolution will be proposed at an Extraordinary General Meeting of the Trust granting the Directors authority to repurchase up to 14.99 per cent of the Trust's issued share capital. Renewal of this buy-back authority will be sought at each Annual General Meeting.

Purchases of shares will only be made through the market at prices (after allowing for costs) below the prevailing Net Asset Value per Share and otherwise in accordance with guidelines established from time to time by the Board.

Next steps

The Trust will convene an Extraordinary General Meeting at which resolutions will be put forward to approve those parts of the Proposals which require shareholder approval.  A circular convening the Extraordinary General Meeting and providing further details of the Proposals will be sent to shareholders as soon as practicable.  Shareholders should await the publication of the circular providing full and final details of the Proposals. A further announcement will be made as soon as formal documentation has been despatched.  An indicative timetable is set out below.  

Indicative timetable

Documentation posted to shareholders	July 2008
Extraordinary General Meeting	August 2008
Tender Offer	August/September 2008

Enquiries

The Throgmorton Trust PLC	020 7379 5151
Richard Bernays (Chairman)
Maitland	020 7379 5151
Neil Bennett
Richard Farnsworth
UBS	020 7567 8000
John Humphrey
Joe Winkley
BlackRock	020 7743 2178
Jonathan Ruck Keene

UBS are acting exclusively for the Trust and no one else in relation to the matters described in this announcement and will not be responsible to anyone other than Throgmorton for providing the protections afforded to clients of UBS or for giving advice in relation to this announcement or any transaction or arrangement referred to herein.

This announcement does not constitute an offer or form any part of any offer or invitation to sell or issue or purchase or subscribe for any shares in Throgmorton.

The value of investments and the income derived from them may fall as well as rise and investors may not recoup the original amount invested in the Trust. Past performance is not indicative of future performance. There is no assurance that the investment objectives of the Trust will actually be achieved.

 

END

 

 

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