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Threadneedle UK Select Trust Limited (the "Company" or "UKT")
Proposed winding up and roll-over into Henderson High Income Trust plc
17 March 2017
Background to the Proposals
In the light of the continuation vote at the forthcoming annual general meeting, the Board has been reviewing the options available to grow the Company to a credible and sustainable size and to reduce the discount at which the Company's shares have traded. Having undertaken a thorough review of the options, the Board reached the conclusion that the Company, in its current form, is not able to continue. Accordingly, the Board undertook a review of potential merger candidates and following a beauty parade process with a shortlist of suitable candidates has decided to recommend a merger with Henderson High Income Trust plc ("HHI").
The Board has agreed heads of terms with the Board of HHI and Henderson Investment Funds Limited ("Henderson") in respect of a future merger with HHI to be effected by way of a reconstruction and winding up of the Company (the "Proposals"). Shareholders will also be offered the opportunity to exit their investment for cash at close to net asset value.
The Proposals will be subject to approval by the shareholders of both companies in addition to required regulatory and tax approvals.
The benefits of the Proposals
For the past twelve months, the Company's shares have traded at an average discount of 13.0 per cent. and, for the past three years, at an average discount of 8.7 per cent. Given the size of the Company, the Board has been unable to take any steps to resolve this discount without adversely affecting the viability of the Company.
The focus of HHI is on investing in a prudently diversified selection of both well known and smaller companies to provide investors with a high dividend income stream while also maintaining the prospect of capital growth. Over the past five years, HHI has generated an annualised total return for its shareholders of 12.9 per cent. and, as at 15 March 2017, has a dividend yield of 4.9 per cent. Over the past three years, the shares have traded at an average premium to the HHI net asset value (cum income, debt at par value) (the "HHI NAV") of 1.95 per cent and, over the past twelve months, have traded at an average premium to the HHI NAV of 0.86 per cent. HHI's shares are currently trading at a premium of approximately one per cent. to the HHI NAV. HHI recently won the UK Equity and Bond Income category at the 2016 Investment Company of the Year Awards.
Through a payment equal to 18 months of base management fee on assets rolled over, Henderson is making a significant contribution to the costs of the Proposals, which will enable the Company's shareholders to roll-over their investment without the payment of any premium to the HHI NAV on the new shares.
The Board believes that the Proposals are in the best interests of shareholders as a whole for the following reasons.
§ HHI has a market capitalisation in excess of £210 million, thereby offering considerably greater liquidity than exists in the Company's shares.
§ They provide shareholders with a cost effective opportunity to invest in a company with a strong long-term performance track record, an attractive dividend yield and shares that are trading at a premium to net asset value.
§ The Proposals offer shareholders access to a leading, highly experienced investment trust manager, with specialist capabilities in relation to UK equity income and a dedicated 18-strong investment trust team.
§ HHI has a significantly lower ongoing charge ratio than the Company due to its increased scale.
§ The cash exit will be available to all shareholders at close to net asset value compared to the average discount of 13.0 per cent. over the past twelve months.
Under the heads of terms agreed by the Board, the scheme of reconstruction will involve the roll-over of part of the assets and undertaking of UKT to HHI by way of a members' voluntary solvent scheme of reconstruction (under the laws of Guernsey) of UKT (the "Scheme").
Under the Scheme, eligible UKT shareholders will be entitled to elect to receive ordinary shares to be issued by HHI for nil premium to the HHI NAV (the "Rollover Option") and/or to receive cash distributions (the "Cash Option").
There will be no restriction on UKT shareholders' ability to elect for the Cash Option. UKT shareholders who fail to make an election will be deemed to have elected for the Rollover Option.
For the purposes of the Scheme, UKT's net asset value (cum income, debt at fair value) (the "UKT NAV") and the HHI NAV will both be calculated in accordance with the respective company's normal accounting policies, taking into account certain adjustments in respect of Scheme costs and dividends. UKT shareholders will not qualify for any HHI dividends declared prior to the Scheme becoming effective.
For the avoidance of doubt, UKT shareholders who elect (or who are deemed to elect) for the Rollover Option will therefore receive new HHI ordinary shares based on the ratio of the respective adjusted NAVs rather than the respective share prices.
Each party intends to bear its own costs (including in the event that the Proposals do not become effective), net of any contribution from Henderson or its group to UKT and HHI as set out below.
Further details of the Scheme will be set out in the circular to be posted to UKT shareholders in due course.
Henderson has proposed a contribution to the costs of the Proposals equating to a sum that is equivalent to 18 months' of the HHI base management fee (being 0.5 per cent. per annum) of the total assets that rollover into HHI. The financial value of this amount will be credited against the proportion of the HHI prospectus costs represented by the shares issued to UKT shareholders in order that no issue premium to the HHI NAV will be paid by such UKT shareholders and the balance, if any, will be paid to UKT and credited against the UKT NAV for the purposes of the Scheme.
It is estimated that the costs of the Scheme (excluding the liquidator's retention and any portfolio disposal costs), which will be borne by all UKT shareholders, will be approximately equal to 0.5 per cent. of the UKT NAV.
It is currently envisaged that a circular and notice of the general meeting setting out details of the Scheme and seeking shareholder approval will be sent to shareholders in May 2017. The relevant general meetings are expected to be convened to be held in June 2017 and the Scheme is expected to become effective by the end of June 2017.
The Scheme will be conditional on, amongst other things, the recommendation of the Boards of both companies, the necessary shareholder approvals of both companies and the appropriate regulatory and tax approvals in due course.
The Chairman of Threadneedle UK Select Trust Limited, David Warr, said:
"Having undertaken a thorough review of the options available to the Company, we are pleased to be able to recommend a merger with Henderson High Income Trust plc. Whilst the Board has been satisfied with the investment performance of the Company over recent years, we recognise the importance for shareholders of scale and liquidity for their investment and the appeal of an investment in a successor trust that offers an attractive dividend yield and a premium to NAV.
The Board would like to thank the Company's investment manager, Chris Kinder, for his contribution to the trust and strong performance since his appointment in September 2014."
The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014. Upon the publication of this announcement via Regulatory Information Service this inside information is now considered to be in the public domain.
JTC Fund Solutions (Guernsey) Limited
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