UK Select Trust Limited
04 August 2005
4 August 2005
UK Select Trust Limited
Circular to Shareholders
Further to the posting of an offer document to Shareholders on 26 July 2005 by
Elm Grove (Caymans), Ltd ('Elm Grove') the Board of UK Select Trust Limited ('UK
Select') will today be posting a circular to Shareholders setting out the
Board's view on the Elm Grove Offer and detailing its own proposals for the
future of the Company (the 'Circular').
Words and expressions used in this announcement bear the same meaning as those
defined in the Circular.
On 19 July 2005, Elm Grove (which is wholly owned by Millennium Partners, the
Company's largest Shareholder) announced the terms of a cash offer for the
issued share capital of UK Select that is not already held by it, at a price of
99 per cent. of the formula asset value per UK Select Share ('FAV'). On 26 July
2005, Elm Grove posted its Offer Document to Shareholders.
The Board unanimously recommends to Shareholders that they do not accept the Elm
The Board is instead proposing to Shareholders the choice of:
• continuing their investment in UK Select with its very good recent
• tendering some or all of their shares at 99 per cent. of Tender FAV by way
of a Tender Offer for up to 50 per cent. of the Company's Shares.
As explained below, the Board considers that it is reasonable to assume that
elections for the Tender Offer should be satisfied in full or substantially so.
Tender FAV will be calculated on a similar basis as FAV under the Elm Grove
Offer. Further details of the Board's Proposals are set out below.
The Board's Proposals will only be implemented if the Elm Grove Offer lapses or
is withdrawn and furthermore will be conditional upon the passing of the
appropriate resolutions at an EGM of the Company and upon at least 30 per cent.
of the Company's Shares being tendered.
Although the Board is advising Shareholders not to accept the Elm Grove Offer,
the Board acknowledges that the Elm Grove Offer provides a fair value to
Shareholders wishing to exit UK Select for cash.
The Board, however, believes its Proposals to be superior as they provide all
Shareholders with the choice of an exit for cash at a similar level to the Elm
Grove Offer or continuing their investment in UK Select as a fully listed
company. It is the Board's view that its Proposals are in the best interests of
Shareholders as a whole.
Millennium Partners has been seeking to exit UK Select for some time. On 22
February 2004, Millennium Partners wrote to UK Select asking the Board to
consider ways for Shareholders to realise their investments at close to NAV. In
order to ascertain the views of Shareholders, the Board put a continuation vote
to an EGM of the Company held on 14 June 2004. Even though Millennium Partners
wrote to all Shareholders urging them to vote against the continuation of UK
Select, a majority of Shareholders showed their support for the Company and
voted for it to continue. On 22 February 2005, the Board was again asked by
Millennium Partners to consider whether UK Select should continue in its present
form. Again, in order to ascertain the views of Shareholders, the Board put a
continuation vote to the annual general meeting of UK Select on 27 April 2005
and again this was passed by a clear majority of Shareholders.
It is the Board's opinion that these recent continuation votes clearly indicate
that the majority of Shareholders value UK Select and wish the Company to
continue in its present form.
Performance and Rating
Since the introduction of a new investment process at Scottish Widows Investment
Partnership ('SWIP') (UK Select's manager) and the migration towards a more
focused portfolio for UK Select, UK Select's performance has improved
significantly. Over the year to 2 August 2005 UK Select's NAV has increased (on
a total return basis) by some 32.7 per cent. which compares favourably to the
Company's benchmark, the FTSE All-Share Index (total return) which has increased
by 25.7 per cent. over the same period. In its AITC peer group (UK Growth
sector), as at 2 August 2005, UK Select is ranked (on a NAV total return basis)
2nd out of 17 over six months and 5th out of 17 over twelve months.
Over the longer term, since the appointment of SWIP as investment manager on 25
April 2002, the Company has outperformed the FTSE All-Share Index (on a total
return basis) by approximately 2.0 per cent.
Over the 12 months to 2 August 2005 the Company's share price discount to NAV
has averaged 7.9 per cent. This discount compares favourably to the average for
UK Select's AITC peer group (UK Growth Sector) which, over the same period,
averaged 9.1 per cent.
There are a number of considerations in relation to the Elm Grove Offer and the
Board's Proposals which lead the Board to consider that its Proposals are more
suitable for Shareholders as a whole:
Beyond stating that it will seek to cancel UK Select's London listing, Elm Grove
has not given any clear indication of what will happen to UK Select if the Elm
Grove Offer is successful. It has merely indicated that it will 'consider the
options available to it' which include 'winding-up UK Select and distributing
its assets'. The Offer Document does however make it clear that Elm Grove is
looking to 'provide a mechanism by which (Millennium Partners) can achieve an
While the Board appreciates that Millennium Partners is seeking to exit the
Company, it is also mindful of the majority of Shareholders who have
demonstrated, over the last two years, their commitment to UK Select. The Board
believes that its Proposals address the requirements of all Shareholders as they
would provide an opportunity for Shareholders to exit UK Select at 99 per cent.
of Tender FAV while also ensuring an ongoing vehicle for those Shareholders who
wish to remain with UK Select and its current investment manager.
UK Capital Gains Tax
There are a number of UK resident Shareholders in the Company who may have
significant unrealised UK capital gains tax liabilities. If the Elm Grove Offer
succeeds and Elm Grove decides to wind-up the Company in order to provide
Millenium Partners with its exit, these liabilities would be crystallised. The
Board's Proposals would mean that UK Shareholders would not be required to
realise UK capital gains tax liabilities.
Tax Advantages of UK Select
The Board believes that UK Select's substantial private Shareholder base both in
the UK and the Channel Islands values the fact that Shareholders are able to
receive dividends in a tax efficient manner by way of scrip dividends in lieu of
Channel Islands Tax
The Company is exempt from Guernsey income tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinances 1989 and 1992, and as a result all cash dividends
are paid without the deduction of tax to non-Guernsey resident Shareholders, who
may thus obtain some deferral of their liability. Holdings in the Company are
also free of UK inheritance tax for the large number of Channel Islands resident
Shareholders who, through the Company, can obtain an exposure to UK assets.
Elm Grove has not given Shareholders a basis for any confidence that either UK
Select or these tax advantages will be preserved if the Elm Grove Offer is
Based on the experience of the recent continuation votes, the Board considers
that the majority of Shareholders wish to retain an ongoing investment in UK
Select. However, the Board accepts that Millennium Partners, and possibly some
other Shareholders, may wish to exit for cash. Accordingly, the Board's
Proposals seek to satisfy both of these requirements. The Proposals would
retain the Company as a viable investment entity, whilst offering those
Shareholders who wish to exit for cash the opportunity to do so. The Proposals
would only be put to Shareholders if the Elm Grove Offer fails. In light of
this and the recent continuation votes, the Board considers that even allowing
for the proposed partial disposal of SWIP's holding described below, it is
reasonable to assume that, in the absence of a change in circumstances, the
holders of less than half of UK Select Shares would wish to exit for cash.
Accordingly, elections for the Tender Offer should be satisfied in full or
Accordingly, the Board is proposing to provide Shareholders with the choice of:
(i) Remaining invested in the Company:
• Shareholders will be able to continue with their investment managed by
SWIP who are responsible for the Company's very good recent
• the Company will continue to provide Shareholders with exposure to the
UK equity markets;
• there will be no forced realisation of capital gains for UK
• the Company will continue to provide a scrip dividend option, with its
favourable tax treatment for a number of UK and Channel Islands
• the Company will use its share repurchase authority with the
objective of, inter alia, minimising the Share price discount to NAV;
(ii) Tendering some or all of their shares for a cash exit at 99 per cent. of
• the Board will convene an EGM and propose a Tender Offer for up to 50
per cent. of the Company's Shares;
• Shareholders tendering more than 50 per cent. of their holding will be
satisfied, on a pro rata basis, to the extent that other Shareholders
tender less than 50 per cent;
• there should in practice be a cash exit for all, or substantially all
the holdings of Millenium Partners and any other Shareholders wishing
to exit; and
• this will ensure that the ongoing Company is of a viable size.
Tender FAV will be calculated on a similar basis to FAV under the Elm Grove
Offer save that Tender FAV will include the expenses of the Tender Offer but not
the expense of terminating the Management Agreement. It is estimated that these
differences will result in Tender FAV being 1 per cent. lower than FAV if 50 per
cent. of UK Select Shares are tendered and 1.7 per cent. lower if the minimum 30
per cent. of UK Select Shares are tendered. Tender FAV will be calculated by
reference to the date of the closing of the Tender Offer, rather than at the
date that the Elm Grove Offer becomes or is declared unconditional as to
If the Elm Grove Offer fails, the Board would, as soon as reasonably practicable
thereafter, post the circular containing details of the Tender Offer and
convening an EGM of the Company to approve the Tender Offer. At that meeting,
the Tender Offer would require the support of not less than 75 per cent. of
On 3 August 2005 SWIP delivered a letter of intent to the Company which
indicated the following in respect of the 8,247,000 UK Select Shares
(representing approximately 21.6 per cent. of the existing issued share capital
of the Company) which it holds on behalf of its clients:
(i) SWIP does not intend to accept the Elm Grove Offer in respect of any such
UK Select Shares unless the Elm Grove Offer becomes or is declared
unconditional as to acceptances; and
(ii) if the Tender Offer proceeds, SWIP would not intend to tender 6,300,000 UK
Select Shares, representing approximately 16.5 per cent. of the existing
issued share capital of the Company. SWIP has indicated that for tax
reasons the holding of one of its existing clients, amounting to 1,947,000
UK Select Shares, representing approximately 5.1 per cent. of the existing
issued share capital of the Company, is to be sold and therefore SWIP is
likely to accept the Tender Offer in respect of those Shares. However, it
is possible that this holding may be realised in the market ahead of the
closing date of the Tender Offer.
Should the Tender Offer proceed and Shares representing 50 per cent. be
tendered, SWIP's shareholding in the Company would amount to 6,300,000 UK Select
Shares, representing approximately 33 per cent. of the then existing issued
share capital of the Company.
At the EGM to approve the Tender Offer, the approval of a separate vote
(requiring the support of over 50 per cent. of the votes cast) of the
independent shareholders of the Company (i.e. excluding SWIP and those acting in
concert with it) would be required in order to obtain a dispensation from the
City Code's requirement for SWIP to make a mandatory offer. It should be noted
that for as long as SWIP's holding in the issued share capital of the Company is
greater than 30 per cent. but less than 50 per cent., any future tender offers
and share repurchases made by UK Select would require the approval of the
independent shareholders of the Company at the time of the Tender Offer and
thereafter on an annual basis at the Company's annual general meeting.
As stated above, subject to the necessary approvals, it is the Board's intention
to pursue an active share repurchase policy. The Board believes that share
buy-backs increase liquidity in the Company's Shares, reduce the volatility at
which its Share price trades to NAV and minimise the Company's Share price
discount to NAV and provide an uplift to ongoing NAV.
The Board considers that both the Offer Price and the Tender Price provide a
fair value to Shareholders wishing to exit UK Select for cash.
The Board believes that the best interests of Shareholders as a whole will be
served by the implementation of the Board's Proposals.
Accordingly, the Board is unanimously recommending to Shareholders that they do
not accept the Elm Grove Offer. The Directors intend not to accept the Elm Grove
Offer in respect of their own beneficial holdings in UK Select which, in
aggregate, amount to 1,567,776 UK Select Shares, representing approximately 4.1
per cent. of the existing issued share capital of the Company. Furthermore,
your Directors intend not to tender any of their beneficial holdings in UK
Select under the Tender Offer and to continue their investment in UK Select.
Jim Le Pelley 01481 719516
Corporate Services 01481 721234
Andrew Zychowski/Joe Winkley 020 7623 8000
Dresdner Kleinwort Wasserstein
Dresdner Kleinwort Wasserstein, which is regulated by the Financial Services
Authority, is acting for the Company and for no-one else in connection with the
contents of this announcement and will not be responsible to anyone other than
the Company for providing the protections afforded to customers of Dresdner
Kleinwort Wasserstein, or for affording advice in relation to the contents of
this announcement or any matters referred to herein.
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