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City of Lon Inv Grp (CLIG)

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Tuesday 09 June, 2020

City of Lon Inv Grp

Proposed All Share Merger of CLIG with KMI

RNS Number : 3362P
City of London Investment Group PLC
09 June 2020
 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR INTO ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OR BREACH OF ANY APPLICABLE LAW.  PLEASE SEE THE PARAGRAPH HEADED IMPORTANT NOTICE IN THIS ANNOUNCEMENT.

THIS ANNOUNCEMENT, WHICH DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT, IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES, AND NEITHER THIS ANNOUNCEMENT NOR ANYTHING HEREIN FORMS THE BASIS FOR ANY CONTRACT OR COMMITMENT WHATSOEVER.

The information contained within this announcement is deemed by the Company to constitute inside information stipulated under the Market Abuse Regulation (EU) No. 596/2014.  Upon the publication of this announcement via a Regulatory Information Service, this inside information is now considered to be in the public domain.  

9 June 2020

 

CITY OF LONDON INVESTMENT GROUP PLC

("CLIG", the "Group" or the "Company")

Proposed All Share Merger of CLIG with Karpus Management Inc. ("KMI")

City of London Investment Group PLC, today announces that it has entered into a Merger Agreement to acquire the entire issued share capital of Karpus Management Inc., a US-based investment management business, on a debt free basis, to be satisfied through the issue of up to 24,118,400 new shares in the capital of the Company which, based on the closing price of the Shares on the date of the Merger Agreement of 325 pence per Share, equates to £78.4 million. In addition, each KMI Stockholder will be entitled to a cash payment pro rata to their interest in KMI of the amount by which the net working capital of KMI at Completion exceeds US$550,000 up to a maximum amount in aggregate of US$550,000.

Summary Rationale

The Company has, over the years, looked at a wide range of businesses to identify opportunities to spread risk, create economies of scale, and provide greater security and career opportunities for employees. On each occasion when management looked in depth at a business, they decided for cultural or structural reasons, or as a result of conflicts of interest, not to proceed.

In deciding to proceed with the Merger with KMI, the Directors believe that it will deliver the following key benefits:

· the Directors believe that the Merger with KMI is highly complementary and represents an opportunity for significant diversification, which is in line with the Group's strategic plan;

· the Directors believe that that the addition of KMI will reinforce the Group's presence in the US where it is already very well established;

· the Merger has the potential to be earnings enhancing for the first full financial year following Completion;

· the Merger is expected to establish CLIG in a new but related segment with immediate scale. KMI invests predominately in closed-end funds ("CEFs"), which relates to CLIG's core market, and has delivered strong investment performance for its clients;

· the Directors believe that the Merger will also diversify CLIG from the potentially more volatile Emerging Market segment of asset management, therefore reducing earnings volatility for the Enlarged Group;

· the clients of KMI are largely drawn from the wealth management sector and the Directors believe that earnings of the wealth management sector can be less volatile than other parts of the asset management sector and can offer long-term stable client relationships;

· the founder and management team of KMI will become significant stakeholders in the Enlarged Group as the Merger is a share-based transaction;

· the Directors believe that in the medium term onwards, the Merger has the potential to improve liquidity in the Shares, to provide employees with additional career opportunities and to develop the Company's strategy and ambitions to compete more extensively and in new markets.

Impact of Covid-19

The Board has considered carefully the impact of the COVID-19 pandemic and has concluded that the strategic rationale for the Merger remains sound and indeed may have been enhanced given the strong strategic fit of the two businesses, the diversification of the revenue base and risk mitigation which the Directors strongly believe will result from the Merger. Furthermore, the Board is confident that both businesses are well set to take advantage of opportunities when the situation has stabilised.

About Karpus Management Inc.

KMI is a US SEC-registered investment management business, with its principal place of business located in Pittsford, New York, that uses CEFs amongst other securities as a means to gain exposure for its client base comprising US high net worth clients and corporate accounts. KMI was founded by George Karpus in 1986, growing the business to an estimated US$3.4 billion in funds under management as at 31 May 2020. George Karpus is currently chairman of the board and chief investment strategist of KMI. Prior to founding KMI, George Karpus held key positions at two brokerage firms, a regional bank and another investment advisory firm. George Karpus is resident in, and a citizen of, the United States. George Karpus is the largest shareholder with approximately 66.1 per cent. of KMI's equity, with 13.3 per cent. owned by George Karpus' family members, 10.0 per cent. by a charitable foundation and a university, and the remainder by management and one former executive.

As at 31 March 2020, KMI managed US$3.2 billion in funds under management for 2,273 client accounts. Most client assets are managed in balanced portfolios, with over 50 per cent. invested in CEF and CEF-preferred securities.

Selected financial information on Karpus Management Inc.

Set out below is selected unaudited financial information for KMI for the years ended 30 June 2018 and 30 June 2019 and unaudited interim financial information for KMI for the six months ended 31 December 2018 and 31 December 2019.

US$ million

Year to 30 June 2018

Unaudited

Year to 30 June 2019

Unaudited

Six months to 31 December 2018

Unaudited

Six months to 31 December 2019

Unaudited

Net Fee Income

25.0

25.7

12.8

13.7

Administrative Expenses1

25.3

25.9

13.0

13.1

Operating (loss) / profit

(0.3)

(0.2)

(0.3)

0.6

Other income / (expense)

0.1

0.7

(0.1)

0.7

(Loss) / Profit Before Taxation

(0.3)

0.5

(0.3)

1.3

Total Assets

9.3

9.0

17.3

11.3

Net  Assets

5.8

7.3

6.7

0.3

 

Note 1: Administrative expenses for the years ended 30 June 2018 and 30 June 2019 and for the six months ended 31 December 2018 and 31 December 2019 including staff bonus expenses are as follows:

 

US$ million

Year to 30 June 2018

Year to 30 June 2019

Six months to 31 December 2018

Six months to 31 December 2019

Bonus expenses

16.8

17.8

9.1

9.3

 

In addition, historic details of KMIs FuM are set out below:

US$ billion

As at 30 June 2017

Unaudited

As at 30 June 2018

Unaudited

As at 30 June 2019

Unaudited

As at 31 December 2019

Unaudited

As at 31 March 2020

Unaudited

Funds under Management

3.05

3.12

3.40

3.62

3.20

 

The Enlarged Group

Financial effects of the Merger

The Circular to be published shortly in connection with the transaction will contain pro forma statements of net assets and profit before tax of the Enlarged Group (as more fully detailed below).

It is estimated by the Directors of CLIG and KMI that as at 31 May 2020 they had FuM of approximately US$5.0 billion and approximately US$3.4 billion respectively.

Immediately following Admission of the New Shares, the Enlarged Share Capital is expected to be up to 50,679,107 Shares and on this basis, the New Shares will represent up to approximately 47.6 per cent. of the Enlarged Share Capital.

Management and Operations of the Enlarged Group

George Karpus founded KMI in 1986, growing the business to approximately US$3.2 billion in funds under management as at 31 March 2020. George Karpus is currently Chairman of the Board and Chief Investment Strategist of KMI. Prior to founding KMI, George Karpus held key positions at two brokerage firms, a regional bank and another investment advisory firm.

Kathleen Crane has been employed by KMI since 1986 and currently holds positions as Chief Financial Officer, Treasurer and Secretary. Between 2004 and 2018, Ms Crane also acted as Chief Compliance Officer in addition to her current duties. Ms Crane graduated from Saint Bonaventure University in 1986 with a Batchelor of Arts in Management Science and a minor in Computer Science.

KMI is run by its Management Committee, headed by George Karpus and five other members: Kathleen Crane (Chief Financial Officer); Thomas Duffy (Vice President); Sharon Thornton (Executive Vice President); Dana Consler (Executive Vice President); and Daniel Lippincott (Director of Investment Personnel). KMI has four other committees: Investment, Brokerage Allocation, Compliance and Systems and Procedures.

CLIG intends that KMI will continue to operate as a distinct entity and a fully operational business within the Enlarged Group. It is anticipated that there will be areas of mutual advantage and support, for example in the areas of marketing initiatives, finance, payroll, information technology and operational support.

Many of the Group's operational functions are already based in the US and will remain so following Completion of the Merger. Tom Griffith will remain as Global Chief Executive and will be based in Coatesville, Pennsylvania and report to the CLIG Board of Directors.

Merger Agreement

Under the terms of the proposed Merger, the Company will become the holding company of the Enlarged Group, comprising CLIM and KMI.

The consideration due under the Merger Agreement will be satisfied through the issue of up to 24,118,400 New Shares in the capital of the Company (which, based on the closing price of the Shares on the date of the Merger Agreement of 325 pence per Share, equates to £78.4 million). In addition, each KMI Stockholder will become entitled to a cash payment (pro rata to their interest in KMI) of the amount by which the net working capital of KMI at Completion exceeds US$550,000, up to a maximum amount in aggregate of US$550,000.

On the terms and subject to the conditions of the Merger Agreement, at Completion, each KMI Stockholder shall receive up to 79.18 New Shares for every KMI Share, with any fractional entitlement to New Shares forfeited by the KMI Stockholders. The aggregate number of New Shares to be issued to KMI Stockholders shall be reduced if, at the date which is three days prior to Completion, the aggregate assets under management of KMI's clients who have by such date consented to the Merger, is less than US$3.0595 billion. In such circumstances, the aggregate number of New Shares to be issued to KMI Stockholders shall be reduced by a number of shares equal to 24,118,400 multiplied by a percentage arrived at by taking (i) 95 per cent. and subtracting (ii) the quotient expressed as a percentage arrived at by dividing KMI's aggregate assets under management at the date which is three days prior to Completion by US$3.2205 billion.

US$10.0 million worth of New Shares valued as at, and due to George Karpus on, Completion shall be placed in escrow with a third-party escrow agent as security against any indemnification or adjustment claims made against George Karpus under the terms of the Merger Agreement. The escrowed New Shares, and the distributions accruing on them, shall be released in stages up to the fifth anniversary of Completion.

The Merger will be implemented by way of a reverse triangular merger in accordance with the New York Business Corporation Law and in accordance with the terms of the Merger Agreement. Subject to the satisfaction of certain conditions, including the approval of Shareholders and KMI Stockholders (which in the case of the KMI Stockholders, has already been obtained), the Company and KMI shall procure that Merger Sub (a newly-formed, direct wholly-owned subsidiary of Company) will merge with and into KMI, with KMI surviving such merger as a direct wholly-owned subsidiary of the Company.

Application will be made for the New Shares to be listed on the premium segment of the Official List and to be admitted to trading on the premium segment of the main market of the LSE, in each case upon Completion.  Pursuant to the Lock-up Deed, the KMI Stockholders will agree that, subject to certain customary exceptions, for a period of 12 months from Completion, they will not, without the prior written consent of Zeus Capital and the Company, offer, sell or contract to sell, or otherwise dispose of any New Shares (or any interest therein or in respect thereof) or enter into any transaction with the same economic effect as any of the foregoing. In addition, for a further period of 12 months, without the prior written consent of Zeus Capital and the Company, the KMI Stockholders have agreed that they will not dispose of any interest in the New Shares other than through Zeus Capital, subject to the terms relating to price and execution offered by Zeus Capital being no less favourable than other brokers at that time.

The KMI Stockholders will further agree to waive their entitlement to receive: (i) the final  dividend declared on the Shares in respect of the financial period to 30 June 2020 in respect of their entire holding of Shares; and (ii) the interim and final dividend declared on the Shares for the financial period to 30 June 2021 in respect of such percentage of their holding of Shares which represents the number of days in that financial period for which they do not hold Shares, divided by 365.

Completion is subject to customary conditions for a transaction of this size and type including, among other things, the following: (i) approval of the Merger by KMI Stockholders (which condition has been satisfied); (ii) approval of the Merger, of the authority to allot New Shares in connection with the Merger and of the Rule 9 Waiver by Shareholders at the General Meeting; (iii) receipt of customary regulatory approvals, including, among others: (a) expiration or termination of any applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act of 1976; (b) approval of the Merger by the FCA in respect of George Karpus becoming a controller of City of London Investment Management; (c) approval from the applicable governmental authorities in Singapore; (iv) KMI's FuM immediately before Completion in respect of clients who have consented to the Merger being at least US$2.5764 billion; (v) CLIG's FuM as at 1 July 2020 being at least US$3.5 billion; (vi) admission of the New Shares to listing on the premium segment of the Official List, and to trading on the premium segment of the main market of the London Stock Exchange, becoming effective; and (vi) the absence of a material adverse change on the business, assets, financial condition, operating results, or liabilities of KMI.

The Company will announce Completion of the Merger through an RIS as soon as practicable following Admission.

Further details of the Merger Agreement will be set out in a combined prospectus and circular (the "Circular") to be sent to CLIG Shareholders shortly.

 

Barry Aling, Chairman of City of London Investment Group PLC, said:

"CLIG shareholders will know that the objective of diversifying our revenue base beyond the capacity-constrained emerging market CEF universe has been a strategic priority for some years and this Merger will result in a quantum leap in realising that goal. While the two businesses share many similarities in terms of a CEF-driven investment philosophy and process, they are highly complementary in terms of their markets and client segments with negligible overlap. I believe that this combination will result in CLIG becoming THE global "Go-To" CEF house, offering a value-driven commitment to long-term investment performance for its clients and enhanced growth opportunities for its shareholders and employees."

 George Karpus, Chairman of Karpus Management Inc., said:

"Using closed-end funds trading at discounts to their net asset values to out-perform other investment managers is something that Barry Olliff, the founder of CLIG and I discovered many years ago. As we explored a potential relationship of our two firms, we recognized that even though our client bases were different, we were not only achieving excellent investment performance, but we also shared the same view as to the treatment of employees and ownership. This merger of our two firms should make us the biggest and best in the world with respect to closed-end fund investing and should enable this success to continue in the years to come.  There is a significant increase in the quality and depth of employee and technological talent along with excellent succession planning for Barry and myself that should ensure top results for our clients for many years to come."




 For further information please contact:

City of London Investment Group PLC

Tom Griffith, CEO


 

(via Zeus)

 

Zeus Capital Limited (Financial Adviser and Broker)


 

+44 (0) 20 3829 5000

Martin Green, Daniel Harris

 

Beaumont Cornish Limited (Sponsor)

 

 

 

  +44 (0) 207 628 3396

 

Roland Cornish, Michael Cornish

 

 

 

 

Important Notices

This Announcement does not constitute an offer to sell or the solicitation of an offer to purchase New Shares in the United States or to any U.S. person.  The New Shares will not be registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any state of the United States.  New Shares will be issued in the United States to KMI Stockholders in reliance on available exemptions from registration under the Securities Act and applicable state law registration requirements.

This announcement has been issued by and is the sole responsibility of the Company. The information contained in this announcement is for background purposes only and does not purport to be full or complete. The information in this announcement is subject to change. A copy of the combined circular and prospectus when published will be available on the Company's website, provided that such circular and prospectus will not, subject to certain exceptions, be available to certain shareholders in certain restricted or excluded territories. The combined circular and prospectus will give further details of the Merger and all shareholders are advised to read the circular and prospectus in full.

This announcement is for information purposes only and is not intended to and does not constitute an offer to sell, or the solicitation of an offer to subscribe for or buy, any shares nor any other securities in any jurisdiction. Shares will not be generally made available or marketed to the public in the UK or any other jurisdiction in connection with the Merger.

The distribution of this announcement into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction.

Beaumont Cornish Limited, Zeus Capital Limited and Pakenham Partners Limited (together, the "Financial Advisers"), each of which is authorised and regulated by the FCA in the United Kingdom, are each acting for the Company and for no one else in connection with the Merger, and will not regard any other person as a client in relation to the Merger and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients, nor for providing advice in connection  with the Merger, or any other matter, transaction or arrangement referred to in this announcement.

Apart from the responsibilities and liabilities, if any, which may be imposed on the Financial Advisers by the FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where the exclusion of liabilities under the relevant regulatory regime would be illegal, void and unenforceable, none of the Financial Advisers nor any of their respective affiliates accepts any responsibility or liability whatsoever and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, fairness, sufficiency, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company or the Merger and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Each of the Financial Advisers and their respective affiliates accordingly disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise (save as referred to above) which it might otherwise have in respect of this announcement or any such statement. Furthermore, each of the Financial Advisers and/or their affiliates provides various financial advisory services from time to time to the Company.

No person has been authorised to give any information or to make any representations other than those contained in this announcement and, when published, the combined circular and prospectus and, if given or made, such information or representations must not be relied on as having been authorised by the Company, KMI or the Financial Advisers. Subject to the Listing Rules, the Prospectus Regulation Rules and the Disclosure Guidance and Transparency Rules of the Financial Conduct Authority, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of the Company since the date of this announcement or that the information in it is correct as at any subsequent date.

This announcement may contain certain forward-looking statements, beliefs or opinions, with respect to the financial condition, results of operations and business of the Company, the Enlarged Group following the Merger. These statements, which contain the words "anticipate", "believe", "intend", "estimate", "expect", "may", "will", "seek", "continue", "aim", "target", "projected", "plan", "goal", "achieve" and words of similar meaning, reflect the Company's beliefs and expectations and are based on numerous assumptions regarding the Company's present and future business strategies and the environment the Company and the Enlarged Group will operate in and are subject to risks and uncertainties that may cause actual results to differ materially. No representation is made that any of these statements or forecasts will come to pass or that any forecast results will be achieved. Forward-looking statements involve inherent known and unknown risks, uncertainties and contingencies because they relate to events and depend on circumstances that may or may not occur in the future and may cause the actual results, performance or achievements of the Company or the Enlarged Group to be materially different from those expressed or implied by such forward looking statements. Many of these risks and uncertainties relate to factors that are beyond the Company's or the Enlarged Group's ability to control or estimate precisely, such as future market conditions, currency fluctuations, the behaviour of other market participants, the actions of regulators and other factors such as changes in the political, social and regulatory framework in which the Company or KMI operate or in economic or technological trends or conditions. Past performance of the Company or KMI cannot be relied on as a guide to future performance. As a result, you are cautioned not to place undue reliance on such forward-looking statements. The list above is not exhaustive and there are other factors that may cause the Company's or the Enlarged Group's actual results to differ materially from the forward-looking statements contained in this announcement. Forward-looking statements speak only as of their date and the Company, KMI, the Financial Advisers, their respective parent and subsidiary undertakings, the subsidiary undertakings of such parent undertakings, and any of such person's respective directors, officers, employees, agents, affiliates or advisers expressly disclaim any obligation to supplement, amend, update or revise any of the forward-looking statements made herein, except where it would be required to do so under applicable law.

You are advised to read this announcement and, once published, the combined circular and prospectus in their entirety for a further discussion of the factors (including risks, uncertainties and assumptions) that could affect the Company's future performance. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this announcement may not occur. No statement in this announcement is intended as a profit forecast or a profit estimate and no statement in this announcement should be interpreted to mean that the  financial performance of the Company for the current or future financial years would necessarily  match or exceed the historical published for the Company.

The following information is extracted without material adjustment from the Circular being sent to Shareholders shortly. The information below should be read in conjunction with the Circular. Capitalised terms used in this announcement are defined at the end of this announcement.

 

1  Introduction

The Company has on 8 June 2020 entered into a Merger Agreement to acquire the entire issued share capital of KMI on a debt free basis. The consideration due under the Merger Agreement will be satisfied through the issue of up to 24,118,400 New Shares in the capital of the Company (which, based on the closing price of the Shares on the date of the Merger Agreement of 325 pence per Share, equates to £78.4 million). In addition, each KMI Stockholder will become entitled to a cash payment (pro rata to their interest in KMI) of the amount by which the net working capital of KMI at Completion exceeds US$550,000, up to a maximum amount in aggregate of US$550,000. Completion of the Merger Agreement is conditional on, amongst other things, Shareholder Approval and Admission. On Completion, the Company will become the ultimate holding company of the Enlarged Group.

The Board currently anticipates that Completion of the Merger in accordance with the terms of the Merger Agreement will occur on or around 1 October 2020.

Background to the Merger

The Board believes that the Merger will be of substantial strategic and financial benefit to the Group and for all Shareholders. While CLIG and KMI share a focus on investment in CEFs for their respective clients, the two businesses operate in quite separate and distinct market segments. Your Board believes that this business complementarity will serve to improve the stability of revenues and profits over time and thereby reduce Share price volatility and that, for the reasons set out in the Paragraph 6 below entitled "Financial effects of the Merger", the Merger will have the potential to be earnings enhancing for the first full financial year following Completion. Importantly, however, the Group will remain a pure-play asset management business, and the Board believes that the performance of City of London Investment Management ("CLIM") and KMI will have relatively low correlation in terms of earnings and asset class performance.

The Directors recognise that both businesses are reliant on the support of their clients. For this reason, we have analysed closely the impact of the transaction on both sets of clients. We have identified three reasons why clients will benefit from the establishment of the Enlarged Group. First, the career paths of investment and management personnel in both businesses will be enhanced. Employees will have the opportunity to be part of an Enlarged Group with expanded opportunity. Secondly, the resources at the disposal of the Enlarged Group to support the investment process by enhanced technology and research will be greater. Thirdly, the business risk for CLIG will be reduced by the earnings of the Enlarged Group being expected to be more stable and more diversified; while in KMI, uncertainty caused by the retirement of George Karpus will be resolved.

The Board has considered carefully the impact of the COVID-19 pandemic and has concluded that the strategic rationale for the Merger remains sound and indeed may have been enhanced given the strong strategic fit of the two businesses, the diversification of the revenue base and the risk mitigation which the Directors strongly believe will result from the Merger. Furthermore, the Board is confident that both businesses are well set to take advantage of opportunities when the situation has stabilised.

Also, the Board believes that the funding of the Merger by the issue of New Shares will not only preserve the Group's current cash balance for future dividends but also lead to improved liquidity in the Company's Shares in the medium to long-term due to the resulting larger market capitalisation.

Throughout its 29-year history, the Group has pursued a value-driven approach to the management of assets through the use of CEFs to provide enhanced investment performance for an institutional client base that is predominantly US-based. The twin strategies of using investment consultants to extend its marketing reach and constructing a CEF  platform to enhance relative returns has created a successful business investing in emerging markets. More recently, the strategy to diversify dependence on volatile emerging markets through the creation of parallel products in developed markets has been a success and the Board believes that this organic shift in the asset mix will continue to yield positive results. However, organic diversification is a slow process, requiring many years to establish teams able to generate a superior track record that will attract new fund flows. The Group has always been mindful of the need to consider merger or acquisition opportunities that could accelerate growth and stabilise a revenue stream which is relatively volatile and may be difficult to forecast. In attempting to diversify by means of CEFs or compatible products, the Company has, over the years, looked at a wide range of businesses to identify opportunities to spread risk, create economies of scale, and provide greater security and career opportunities for employees. On each occasion when management looked in depth at a business, they have decided for cultural or structural reasons, or as a result of conflicts of interest, not to proceed.

For over 10 years, the Company has been aware of KMI, an investment management business that uses CEFs amongst other securities, as a means to gain exposure for its client base, which is concentrated in the wealth management sector. Through a process of regular contact at an industry level over a number of years, the management of both firms have become more familiar with their counterparts, gaining an insight into the similarities in terms of business culture and philosophy. At the beginning of 2018, these contacts entered a more formal phase in which the potential benefits of a business combination were explored for the first time in detail. The corporate cultures of both CLIG and KMI are performance-based, sharing a commitment to investment returns and repeatable investment processes, including significant use of CEFs. Both firms are entrepreneurial - created from strong individual leadership and dynamism, which is now passing to the next generation of management. In our discussions, management believe that the professionals within the two firms have earned each other's respect based on their professional track records.

It is intended that CLIM and KMI would remain separate investment management entities within the Enlarged Group for the foreseeable future. The intention is not to alter either investment management business. Existing offices will remain in place staffed by existing personnel. No client-facing functions will alter. Savings, improvements, and economies of scale that may be achieved are at the holding company level in the functions of finance, payroll, information technology and certain aspects of operations.

For the Company's strategy and leadership, the proposed Merger clarifies the future direction of the Group by geography, with reinforced strength in the US. Tom Griffith, based in the US, will continue as Global Chief Executive Officer, backed by an experienced management team. The founders of CLIG and KMI, Barry Olliff and George Karpus respectively, support this transaction, which they view as a culmination of their business visions. Each will remain owners of significant stakes in the Company's Shares and will be committed to the transition of their businesses under new leadership.

As stated earlier, attaining adequate scale through sustained growth has been a key Group objective. Management believe that, viewed from a Shareholder and employee perspective, the ongoing marginal erosion of the Group's average fees (partly as a result of our recent product diversification and partly due simply to industry trends), could give the appearance of a Company entering a slower growth phase. While we are confident that recent successes in achieving organic growth in the diversified products will continue, it is also the case that security and motivation are needed to maintain the Group's enviable employee retention record, established over the past 20 years. This Merger provides employees with career opportunities, which in the long term will be transformative and, in terms of scale, will enable the Group to develop its strategy and expand its ambitions to compete more extensively and in new markets.

The Board is unanimous in believing that there are specific benefits for Shareholders arising from the Merger. In terms of culture, objectives, background, and investment approach, the Merger represents a significant opportunity to operate in a cohesive group. The two investment firms benefit each other with complementary brands, products and US client bases. As such, we believe that this Merger would serve the best interests of all of our stakeholders: Shareholders, clients and employees.

3  Summary information on City of London Investment Group

3.1  Overview

The Group is a growing fund management group, which has built its reputation by specialising in emerging markets CEF investment, with an institutional client focus predominantly based in the US.  Over the years, the Group has expanded its range to include Developed, Frontier, Opportunistic Value and Tactical Income CEF strategies and, more recently, an Emerging Market and international real estate investment trust ("REIT") strategy.

As at 31 March 2020, the Group had US$4.4 billion of funds under management with an institutional client base that remains largely stable. The Group has established offices in London, the US (East Coast and West Coast), Singapore and Dubai, and manages money using a team approach working around the global time zones.

The Group has eight key strategic objectives for CLIM namely: (i) to offer outperformance for clients against its peers through an investment cycle which is defined as five years; (ii) to maximise total Shareholder returns (calculated as any increases in the Share price plus any dividends paid on the Shares) over the economic cycle consistent with its fiduciary duties to all stakeholders; (iii) to ensure high employee retention using a partnership approach and a long-term view with regard to remuneration; (iv) to increase FuM from long-term institutional investors; (v) to remain open in dealings with Shareholders and making management available and accountable; (vi) to remain committed to keeping costs down within all aspects of the business; (vii) to offer good corporate citizenship; and (viii) to continue to diversify the Group's business activities.

3.2  City of London Investment Group's current trading position and outlook

On 17 February 2020, the Company announced its unaudited half year results for the six months ended 31 December 2019 and reported that the Group received notification of approximately US$182 million of net inflows in aggregate across all strategies.

The Group's Emerging Markets strategy outperformed against its relative indices in 2018 and 2019 and remained either first or second quartile against peers for 1, 5, 10, and 15 years, and since inception. (Source: Evestment Alliance). In addition, the Developed strategy had been in the first or second quartile against peers for 1, 3, and 5 years and since inception and the Opportunistic Value strategy had been in the first quartile against peers for the same period (Source: Evestment Alliance), which had been achieved while investing the inflows from new client mandates. The Emerging Market REIT and International REIT strategies posted positive results for the six-month period to 31 December 2019 in relative and absolute terms, driven by good stock selection.

However, on 11 March 2020, the World Health Organisation announced that the outbreak of COVID-19 (commonly referred to as Coronavirus) had been declared a global pandemic. The full impacts of the outbreak are unknown and rapidly evolving, but the potential adverse impact of a widespread and prolonged health crisis on the global economy, has resulted in a substantial decline in financial markets and heightened levels of volatility. The future impact of the outbreak is still highly uncertain and cannot be predicted and the extent of the impact will depend on future developments, including actions taken to contain the Coronavirus and fiscal and monetary stimuli offered by governments globally.

The Group has taken a number of steps to protect the welfare of the Group's employees and comply with the far reaching emergency measures which national governments have introduced to restrict the spread of infection of COVID-19 by social distancing measures which have, inter alia, substantially limited non-essential travel, resulting in an unforeseen level of remote home-working by the Group's employees. The Group has been preparing and testing its Disaster Recovery and Business Continuity Plans for years in order to ensure full operational capability. Currently, all employees are working remotely across the Group's five global offices in order to both protect their health and comply with local regulations. Employees remain connected via audio, video and full network connectivity to all critical systems with security protocols in place to protect client data.

As part of CLIG's regular reporting, the Company publishes within its trading results a dividend cover illustration in the form of a quarterly bar chart ("Template") based on certain trading assumptions, most recently, in the Company's half year results announcement for the six months ended 31 December 2019. As CLIG's clients pay investment management fees on a regular (monthly, quarterly or other) basis calculated as a percentage of funds under management, revenue is directly linked to the value of total funds under management. The last published Template was based on the value of FuM as at 31 December 2019 and assumed no market growth.

As a consequence of the fall in the markets largely due to COVID-19 in which CLIG invests, as at 31 March 2020, CLIG's total FuM amounted to US$4.4 billion, representing a fall of 26.6 per cent. from FuM as at 31 December 2019, as announced by the Company on 21 April 2020. As at 31 May 2020, the Directors of CLIG estimate that the Group's FuM amounted to US$5.0 billion. For the reasons set out below, the Company has therefore withdrawn the Template as it is no longer valid and will not re-introduce any market guidance for the time being until the COVID-19 crisis has abated.

Whilst there has been a short-term impact in the Company's trading performance and whilst it is too early to say whether or to what extent this will continue for the foreseeable future, the Directors believe that the Company's position within its sector remains solid and, therefore, when the markets recover, the Directors believe that the Company can return to the levels of growth that it has demonstrated in prior years.

4  Summary information on Karpus Management Inc.

4.1  Overview

KMI is a US SEC-registered investment adviser, providing investment management services primarily for US high net worth clients and small corporate accounts.

As at 31 March 2020, KMI managed US$3.2 billion in funds under management for 2,273 client accounts. Most client assets are managed in balanced portfolios, with over 50 per cent. invested in CEF and CEF-preferred securities. KMI employs 36 staff including 11 that perform investment advisory functions, including research.

KMI was founded by George Karpus in 1986 in Rochester, New York State and has a sales office in Naples, Florida. George Karpus holds approximately 66.1 per cent. of KMI's equity, with 13.3 per cent. owned by George Karpus 's family members, 10.0 per cent. by a charitable foundation and a university, and the remainder by management and one former executive.

FuM, revenues and profits had been generally stable over the past 10 years, with a gradual increase over the last four years to December 2019, due to a combination of market appreciation and net inflows. Fee income for each of the three financial years ended 30 June 2019 were US$23.3 million (2017), US$25.0 million (2018), and US$25.7 million (2019) respectively.

KMI's unaudited total assets were approximately US$11.3 million as at 31 December 2019. KMI's unaudited profit after tax for the year to 30 June 2019 amounted to approximately US$0.5 million. Please refer to the paragraph below entitled "Financial effects of the Merger" for a discussion of the financial effects of the Merger.

The selected financial information for KMI set out above in this paragraph has been extracted without material adjustment from the unaudited historic financial information of KMI and the unaudited interim financial information of KMI.

4.2  Karpus Management Inc.'s current trading position and outlook

KMI has also been affected by the COVID-19 outbreak. Prior to such outbreak, KMI had maintained a defensive posture regarding its investment decisions and had taken a risk-averse stance to pre-emptively reduce equity exposure prior to the market volatility. Due to increased volatility and significant discount widening, KMI has substantially increased client holdings in CEFs.  KMI believes that the response of many investors to the outbreak has created a favourable buying opportunity in such funds and believes these opportunities should increase value for its clients in the long-term. As at 31 May 2020, KMI estimates that its FuM was US$3.4 billion.

5  Rationale of the Merger

The Directors believe that the Merger will deliver the following strategic and financial benefits to the Group:

· Significant diversification: The Directors believe that the Merger with KMI is highly complementary and represents an opportunity for significant diversification, which is in line with the Group's strategic plan.

· Reinforces strength and presence in US: The Directors believe that the addition of KMI will reinforce the Group's presence in the US where it is already very well established.

· Complementary activities with scale: The Merger is expected to establish CLIG in a new but related segment with immediate scale. KMI invests in the CEF sector, which relates to CLIG's core market, and has delivered strong investment performance for its clients.

· Potential for reduced earnings volatility: The Directors believe that the earnings of the wealth management sector can be less volatile than other parts of the asset management sector and can offer long-term stable client relationships. The Merger will diversify CLIG from the potentially more volatile Emerging Market segment of asset management, therefore reducing earnings volatility for the Enlarged Group. By way of example, in the three months to 31 March 2020 when markets experienced significant falls as a result of COVID-19, KMI's FuM fell by approximately 11 per cent. compared with a fall in CLIG's FuM of almost 27 per cent. over the same period.

· KMI management will become significant stakeholders in the Enlarged Group : The founder and management team of KMI will become significant stakeholders in the Enlarged Group as the Merger is a share-based transaction and the KMI Stockholders will be subject to the Lock-up Deed.

· Potential for improved liquidity in CLIG's Shares in the medium term: The Directors believe that in the medium-term onwards, the Merger has the potential to improve liquidity in the Shares.

6  Financial effects of the Merger

The Circular to be published shortly in connection with the transaction will contain pro forma statements of net assets and profit before tax of the Enlarged Group.

The pro forma net assets of the Enlarged Group were £19.1 million as at 31 December 2019 and the pro forma income statement shows a profit before tax of the Enlarged Group for the six months ended 31 December 2019 of approximately £7.4 million (£4.5 million after transaction costs). In the year ended 30 June 2019, KMI recorded remuneration to the highest paid member of key management, its Chairman, Chief Investment Strategist and 66.1 per cent. stockholder, of US$15.5 million.  The Chairman will resign from KMI on Completion although the Board currently proposes to offer him a position as consultant to KMI in consideration for a fee of US$100,000 per annum. The reduction in his remuneration would, to the extent that earnings continue to be made by KMI in future years, be available to enhance the earnings of the Enlarged Group.

CLIG and KMI had FuM of US$4.4 billion and US$3.2 billion respectively as at 31 March 2020. It is estimated by the Directors of CLIG and KMI that at 31 May 2020 they had FuM of approximately US$5.0 billion and approximately US$3.4 billion respectively.

7  Post-Merger integration

Operational matters and areas of potential mutual benefits

CLIG intends that KMI will continue to operate as a distinct entity and a fully operational business within the Enlarged Group. It is anticipated that there will be areas of mutual advantage and support, for example in the areas of marketing initiatives, finance, payroll, information technology and operational support.

Management of the Enlarged Group

Many of the Group's operational functions are already based in the US and will remain so following Completion of the Merger. Tom Griffith will remain as Global Chief Executive and will be based in Coatesville, Pennsylvania and report to the CLIG Board of Directors.

CLIG has a high regard for the management team and staff at KMI, and it is the intention that the KMI team (other than George Karpus who will resign from KMI on Completion) should remain in place following Completion of the Merger and that the terms and conditions of the team's employment will remain largely unchanged.

A management committee will be formed with members from both businesses.

The Board of CLIG has agreed to offer George Karpus the right to nominate one Non-Executive Director and one Executive Director to the Board of CLIG following Completion, as described in the paragraph below entitled "Summary of the Relationship Agreement".

8  Principal terms of the Merger

Summary of the Merger Agreement

Under the terms of the proposed Merger, the Company will become the holding company of the Enlarged Group, comprising CLIM and KMI.

The consideration due under the Merger Agreement will be satisfied through the issue of up to 24,118,400 New Shares in the capital of the Company (which, based on the closing price of the Shares on the date of the Merger Agreement of 325 pence per Share, equates to £78.4 million). In addition, each KMI Stockholder will become entitled to a cash payment (pro rata to their interest in KMI) of the amount by which the net working capital of KMI at Completion exceeds US$550,000, up to a maximum amount in aggregate of US$550,000. On the terms and subject to the conditions of the Merger Agreement, at Completion, each KMI Stockholder shall receive up to 79.18 New Shares for every KMI Share, with any fractional entitlement to New Shares forfeited by the KMI Stockholders. The aggregate number of New Shares to be issued to KMI Stockholders shall be reduced if, at the date which is three days prior to Completion, the aggregate assets under management of KMI's clients who have by such date, consented to the Merger is less than US$3.0595 billion. In such circumstances, the aggregate number of New Shares to be issued to KMI Stockholders shall be reduced by a number of shares equal to 24,118,400 multiplied by a percentage arrived at by taking (i) 95 per cent. and subtracting (ii) the quotient expressed as a percentage arrived at by dividing KMI's aggregate assets under management at the date which is three days prior to Completion by US$3.2205 billion.

US$10.0 million worth of New Shares valued as at, and due to George Karpus on, Completion shall be placed in escrow with a third-party escrow agent as security against any indemnification or adjustment claims made against George Karpus under the terms of the Merger Agreement. The escrowed New Shares, and the distributions accruing on them, shall be released in stages up to the fifth anniversary of Completion.

The Merger will be implemented by way of a reverse triangular merger in accordance with the New York Business Corporation Law and in accordance with the terms of the Merger Agreement. Subject to the satisfaction of certain conditions, including the approval of Shareholders and KMI Stockholders (which, in the case of the KMI Stockholders has already been obtained), the Company and KMI shall procure that Merger Sub (a newly-formed, direct wholly-owned subsidiary of Company) will merge with and into KMI, with KMI surviving such merger as a direct wholly-owned subsidiary of the Company.

Application will be made for the New Shares to be listed on the premium segment of the Official List and to be admitted to trading on the premium segment of the main market of the LSE, in each case upon Completion. Pursuant to the Lock-up Deed, the KMI Stockholders will agree that, subject to certain customary exceptions, for a period of 12 months from Completion, they will not, without the prior written consent of Zeus Capital and the Company, offer, sell or contract to sell, or otherwise dispose of any New Shares (or any interest therein or in respect thereof) or enter into any transaction with the same economic effect as any of the foregoing. In addition, for a further period of 12 months, without the prior written consent of Zeus Capital and the Company, the KMI Stockholders have agreed that they will not dispose of any interest in the New Shares other than through Zeus Capital, subject to the terms relating to price and execution offered by Zeus Capital being no less favourable than other brokers at that time.

The KMI Stockholders will further agree to waive their entitlement to receive: (i) the final  dividend declared on the Shares in respect of the financial period to 30 June 2020 in respect of their entire holding of Shares; and (ii) the interim and final dividend declared on the Shares for the financial period to 30 June 2021 in respect of such percentage of their holding of Shares which represents the number of days in that financial period for which they do not hold Shares, divided by 365.

Completion is subject to customary conditions for a transaction of this size and type including, among other things, the following: (i) approval of the Merger by KMI Stockholders (which condition has been satisfied); (ii) approval of the Merger, of the authority to allot New Shares in connection with the Merger and of the Rule 9 Waiver by Shareholders at the General Meeting; (iii) receipt of customary regulatory approvals, including, among others: (a) expiration or termination of any applicable waiting period under the US Hart-Scott-Rodino Antitrust Improvements Act of 1976; (b) approval of the Merger by the FCA in respect of George Karpus becoming a controller of City of London Investment Management; (c) approval from the applicable governmental authorities in Singapore; (iv) KMI's FuM immediately before Completion in respect of clients who have consented to the Merger  being at least US$2.5764 billion; (v) CLIG's FuM as at 1 July 2020 being at least US$3.5 billion; (vi) admission of the New Shares to listing on the premium segment of the Official List, and to trading on the premium segment of the main market of the London Stock Exchange, becoming effective; and (vi) the absence of a material adverse change on the business, assets, financial condition, operating results, or liabilities of KMI.

The Company will announce Completion of the Merger through an RIS as soon as practicable following Admission.

Summary of the Relationship Agreement

The Company will enter into the Relationship Agreement with George Karpus and the other members of the Concert Party on or prior to Completion which will, conditional upon Admission, regulate the ongoing relationship between the Company and the Concert Party. The principal purpose of the Relationship Agreement is to ensure that: (i) all transactions and arrangements between the Company or any other member of the Group and the Concert Party and/or any of its associates shall be conducted at arm's length and on normal commercial terms; (ii) neither the Concert Party nor any of its associates take any action that would have the effect of preventing the Company from complying with its obligations under the Listing Rules; and (iii) neither the Concert Party nor any of its associates propose or procure the proposal or passing of a Shareholder resolution which is intended or appears to be intended to circumvent the proper application of the Listing Rules.

George Karpus and the other persons constituting the Concert Party will further agree, pursuant to the terms of the Relationship Agreement, to limit their voting rights at any Shareholder meeting to the lower of: (i) the number of Shares held by them; and (ii) 24.99 per cent. of the votes cast on any resolution by all Shareholders. The Relationship Agreement shall continue in force for so long as: (a) the Shares are listed on the premium segment of the Official List and traded on the London Stock Exchange's main market for listed securities; and (b) the Concert Party together with its associates are entitled to exercise or to control the exercise of 20 per cent. or more of the votes able to be cast on all or substantially all matters at general meetings of the Company.

From Completion, George Karpus has the right to nominate one Non-Executive Director (the "Nominated NED") and, for so long as Relevant Shareholders (being George Karpus, the other members of the Concert Party and any charities or family trusts to whom George Karpus has transferred Shares) hold 20 per cent. or more of the issued share capital of the Company, one Executive Director (the "Nominated Executive"), provided always that such nominated directors shall constitute no more than 24.99 per cent. of the total number of Directors of the Company. The appointment of the nominated directors shall be subject to the approval of the Board, not to be unreasonably withheld or delayed and those directors shall be subject to retirement by rotation in accordance with the Articles.

The Directors believe that the terms of the Relationship Agreement will enable the Group to carry on an independent business as its main activity in accordance with the requirements of the Listing Rules.

Effect of Enlarged Share Capital

Immediately following Admission of the New Shares, the Enlarged Share Capital is expected to be up to 50,679,107 Shares. On this basis, the New Shares will represent up to approximately 47.6 per cent. of the Enlarged Share Capital immediately following Admission, of which the Concert Party will hold up to 37.8 per cent. (including George Karpus who will hold up to 31.5 per cent).

9  Risk factors

Investors should consider fully and carefully the risk factors associated with the Group, the Enlarged Group, the Merger and the Shares, of which the key risks are summarised below:

What are the key risks that are specific to the issuer?

Completion of the Merger is subject to a number of conditions and there is no assurance that they will be satisfied or waived on or before the Longstop Date. If the Merger does not complete, the Company will have incurred one-off costs of up to approximately £2.9 million (plus VAT) which may adversely affect the business and financial condition of the Group.

The financial markets in which the Enlarged Group offers its services are directly affected by many national and international factors that are beyond its control. In particular, the Enlarged Group's financial performance and prospects have already been directly affected by and may continue to be adversely affected by the COVID-19 pandemic, the reaction by governments thereto and the negative reaction by global markets The cumulative impact of the COVID-19 pandemic and its effect on the Enlarged Group's funds under management is uncertain in the longer-term.

The Enlarged Group's revenue and hence its profitability is directly linked to the level of FuM. There is no assurance that the Enlarged Group will be successful in the retention of current FuM. If there is a loss of FuM, as a result of client redemptions or market volatility for example, the Enlarged Group's financial performance may be materially impaired.

The Enlarged Group's financial performance is dependent on the performance of its underlying portfolios. The performance of the Enlarged Group's investment products is central to its ability to attract and retain the FuM from which its fee income is exclusively derived on fixed percentage management fee bases. Any investment underperformance could, therefore, have a material adverse effect on the Enlarged Group's business, reputation and brand, and also on revenue and hence financial performance, financial condition and growth prospects.

The Company has conducted business, legal and financial due diligence in relation to KMI with the goal of identifying and evaluating material risks involved in the Merger. However, the due diligence carried out may not have identified and/or evaluated all such risks. A material level of defect in the performance of the business, legal and financial due diligence in relation to KMI could have an adverse impact on the Enlarged Group's ability to implement its business plan and could adversely impact the Enlarged Group's ability to realise the benefits of the Merger or delay their realisation.

The Enlarged Group's ability to operate as a business is dependent upon it maintaining its regulatory approvals. CLIM's primary regulator is the FCA and KMI's primary regulator is the SEC. Withdrawal or amendment of regulatory approval in respect of all or part of the businesses carried on by a member of the Enlarged Group might oblige a member of the Enlarged Group to cease conducting a particular business or modify the way in which it is conducted which may have a material adverse effect on the Enlarged Group's financial performance.

Given the highly regulated environment in which the Enlarged Group operates, any regulatory proceedings which may be brought against any member of the Enlarged Group could result in adverse publicity or negative perceptions regarding the Enlarged Group as well as divert management's attention from the day-to-day management of the business. A significant regulatory action against the Enlarged Group could have a material adverse effect on the Enlarged Group's business, growth prospects, sales, results of operations and/or financial condition.

Disruption, or lack of access, to internal systems and controls may negatively impact the Enlarged Group's ability to execute its strategy and to analyse in a timely and efficient manner its financial and other business information, which may ultimately have a material adverse effect on the Enlarged Group's business, growth prospects, sales, results of operations and/or financial condition.

What are the key risks that are specific to the securities?

If the Merger completes, Shareholders will be diluted by up to approximately 48 per cent. in their proportionate ownership and up to approximately 35 per cent. in their voting interests in the Company immediately following Completion (assuming that 24,118,400 New Shares are issued pursuant to the Merger and no other Shares are issued by the Company between the date of this announcement and Admission).

The price at which the Shares trade may fluctuate, and investors may not be able to realise their investment in the Company at a price which reflects its fair value.

The Company may not be able to maintain the level of dividends it has historically paid or pay any dividends at all, particularly if the Enlarged Group's performance is affected by the risks set out in the paragraphs above, including the potential effect of the COVID-19 pandemic and the reaction of markets thereto.

On Admission, George Karpus and the other persons constituting the Concert Party will hold, in aggregate, up to approximately 37.8 per cent. of the Enlarged Share Capital. Notwithstanding the terms of the Relationship Agreement, the Articles and applicable laws and regulations, these Shareholders may be able to exercise significant influence over the Enlarged Group and the Enlarged Group's operations, business strategy and those corporate actions which require the approval of Shareholders.

10  Dividend policy

For the financial year to 30 June 2019, the Board declared dividends of 40.5 pence per Share (calculated based on the weighted average number of Shares in issue for the year). This included a special dividend of 13.5 pence per Share.

The Board of CLIG attaches great importance to providing Shareholders with a stable flow of dividends, balanced by a policy of prudential capital management. To this end, the Board has for some years adhered to a dividend cover ratio of 1.2 times profit after taxation attributable to Shareholders based on rolling 5-year periods, using accumulated retained earnings to address any short-term profit shortfalls that derive from volatility in the markets in which CLIM invests. The Board of CLIG intends to continue with the same dividend policy on Completion of the Merger.

 

11  General Meeting

As a result of the size of KMI when compared to CLIG, the Merger is classified under the Listing Rules as a Class 1 Transaction, and its implementation requires the approval of Shareholders at a general meeting. Shareholders will also be asked to approve the allotment of New Shares in connection with the Merger. In addition, George Karpus and 12 of his family members are presumed to be acting in concert under the Takeover Code and on Completion will hold in aggregate, up to 19,145,222 Shares, representing up to approximately 37.8 per cent. of the Enlarged Share Capital. Accordingly, the Merger is also conditional on approval by a poll of Independent Shareholders, to waive the requirement for the Concert Party to make a general offer to all Shareholders where such an obligation would arise as a result of members of the Concert Party acquiring the New Shares (the "Rule 9 Waiver").

Notice of the General Meeting will be set out in the Circular, to be sent to CLIG Shareholders shortly, and which has also been prepared (in accordance with the Prospectus Regulation Rules) in connection with the Company's applications for admission to listing on the premium segment of the Official List and to trading on the premium segment of the main market of the London Stock Exchange of the New Shares to be issued in connection with the Merger and the Rule 9 Waiver.

DEFINITIONS

In this document, the following expressions have the following meanings, unless the context requires otherwise:

"acting in concert"

has the meaning attributed to it in the Takeover Code

"Admission"

admission of the New Shares to listing on the premium segment of the Official List, and to trading on the premium segment of the London Stock Exchange's main market for listed securities, becoming effective, and a reference to Admission becoming "effective" is to be construed in accordance with the Listing Rules or the Standards (as applicable)

"Australia"

Australia, its territories and possessions

"Beaumont Cornish"

Beaumont Cornish Limited, the Company's sponsor and financial adviser for the purposes of the Merger and Admission

"Board"

the board of directors of the Company

"Canada"

Canada, its territories, provinces and possessions and all areas subject to its jurisdiction or any political sub-division thereof

"CEF"

closed-end fund

"Chairman"

the chairman of the Board

"Circular"

the circular and prospectus in connection with the Merger to be published and posted to Shareholders shortly

"Class 1 Transaction"

a transaction classified as a class 1 transaction under Listing Rule 10

"CLIG" or "Group"

the Company and its subsidiaries, from time to time, or where applicable the relevant regulated entity

"City of London Investment Management" or "CLIM"

City of London Investment Management Company Limited, the principal operating subsidiary of the Group in the United Kingdom

"Company"

City of London Investment Group PLC

"Completion"

completion of the Merger in accordance with the Merger Agreement

"Concert Party"

George Karpus and persons acting in concert with him

"Directors"

the Executive Directors and the Non-Executive Directors

"Disclosure Guidance and Transparency Rules" or "DGTRs"

the disclosure guidance and transparency rules made under Part VI of the FSMA, as amended

"EEA"

the European Economic Area

"Enlarged Group"

the Group following Completion of the Merger which, for the avoidance of doubt, includes KMI

"Enlarged Share Capital"

the issued share capital of the Company following Completion of the Merger

"Excluded Territories"

United States, Australia, Canada, Japan or the Republic of South Africa and any other jurisdiction where the distribution of this document (or any transaction contemplated thereby and any activities carried out in connection therewith) would breach applicable law

"Executive Directors"

the executive directors of the Company from time to time

"FCA"

Financial Conduct Authority

"Financial Advisers"

Beaumont Cornish, Pakenham Partners and Zeus Capital

"FSMA"

the UK Financial Services and Markets Act 2000, as amended

"FuM"

funds under management

"General Meeting"

the general meeting of the Company to be convened to approve the Merger, the allotment of New Shares in connection with the Merger and the Rule 9 Waiver

"Group"

the Company and its subsidiaries from time to time

"Independent Shareholders"

all Shareholders other than members of the Concert Party

"Japan"

Japan, its cities, prefectures, territories and possessions

"KMI"

Karpus Management Inc.

"KMI Share"

stock in the capital of KMI

"KMI Stockholders"

holders of stock in the capital of KMI

"Listing Rules"

the rules and regulations made by the FCA under Part VI of the FSMA

"Lock-up Deed"

the Lock-up Deed in the agreed form to be entered into between the Company, Zeus Capital and KMI Stockholders on or prior to Completion.

"London Stock Exchange" or "LSE"

London Stock Exchange PLC

"Longstop Date"

31 December 2020

"MAR" or "Market Abuse Regulation"

Regulation (EU) No. 596/2014 of the European Parliament and of the Council of 16 April 2014 on market abuse

"Merger"

the merger by a subsidiary of the Company with KMI to be effected by a reverse triangular merger pursuant to the Merger Agreement

"Merger Agreement"

the agreement dated 8 June 2020 entered into between the Company, the Merger Sub, KMI and George Karpus, individually and as Stockholder Representative, to effect the Merger

"Merger Sub"

Snowball Merger Sub Inc., a corporation organised under the laws of the State of New York

"New Shares"

the Shares to be issued by the Company to KMI Stockholders pursuant to the Merger

"Nominated Executive"

an individual who George Karpus has nominated for appointment as an Executive Director pursuant to the Relationship Agreement

"Nominated NED"

an individual George Karpus has nominated for appointment as a Non-Executive Director pursuant to the Relationship Agreement

"Non-Executive Directors"

the non-executive directors of the Company from time to time

"Official List"

the Official List of the FCA

"Pakenham Partners"

Pakenham Partners Limited

"Prospectus Delegated Regulation"

Delegated Regulation (EU) No. 2019/980 of the European Commission of 14 March 2019 supplementing the Prospectus Regulation as regards the format, content, scrutiny and approval of the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market

"Prospectus Regulation"

Regulation (EU) No. 2017/1129 of the European Parliament and of the Council of 14 June 2017 on the prospectus to be published when securities are offered to the public or admitted to trading on a regulated market

"Prospectus Regulation Rules"

the Prospectus Regulation Rules of the FCA made under Part VI of FSMA relating to offers of securities to the public and admission of securities to trading on a regulated market

"Regulatory Information Service" or "RIS"

a regulatory information service authorised by the FCA to release regulatory announcements to the London Stock Exchange

"REIT"

real estate investment trust

"Relationship Agreement"

the relationship agreement in the agreed form to be entered into between the Company and the members of the Concert Party on or prior to Completion

"Rule 9 Waiver"

the waiver by the Takeover Panel of the requirement for the Concert Party to make a general offer to all Shareholders where such obligation would arise as a result of the members of the Concert Party acquiring the New Shares

"SEC"

the US Securities and Exchange Commission

"Shareholder"

a holder of Shares

"Shareholder Approval"

approval of the resolutions to be proposed at the General Meeting

"Shares"

ordinary shares of 1 penny each in the share capital of the Company

"Singapore"

the Republic of Singapore

"Sponsor"

Beaumont Cornish

"Standards"

the "Admission and Disclosure Standards" of the London Stock Exchange

"Stockholder Representative"

George Karpus

"Takeover Code"

the City Code on Takeovers and Mergers in the UK

"Takeover Panel"

the Panel on Takeovers and Mergers in the UK

"Template"

has the meaning set out in paragraph 3.2 of this announcement

"UK" or "United Kingdom"

the United Kingdom of Great Britain and Northern Ireland

"US" or "United States"

United States of America, its territories and possessions, any state of the United States and the District of Columbia

"Zeus Capital"

Zeus Capital Limited

 

SOURCES OF INFORMATION

1.  The financial information relating to CLIG as at and for each of the years ended 30 June 2018 and 30 June 2019 has been extracted without adjustment from the consolidated, audited financial statements relating to CLIG as at and for the years ended 30 June 2018 and 30 June 2019 and financial information relating to CLIG as at and for the six months ended 31 December 2018 and 31 December 2019 has been extracted without adjustment from the consolidated unaudited interim financial statements relating to CLIG as at and for the six months ended 31 December 2018 and 31 December 2019 (the "CLIG Financial Information"). The CLIG Financial Information has been prepared in accordance with International Financial Reporting Standards as adopted by the European Union ("IFRS").

 

2.  The financial information relating to KMI as at and for each of the years ended 30 June 2017, 30 June 2018 and 30 June 2019 has been extracted without adjustment from the unaudited historical financial information relating to KMI as at and for the years ended 30 June 2017, 30 June 2018 and 30 June 2019 and financial information relating to KMI as at and for the six months ended 31 December 2019 has been extracted without adjustment from the unaudited interim financial information relating to KMI as at and for the six months ended 31 December 2019, (the "KMI Financial Information"). In the Circular, the KMI Financial Information will be presented in a form that is consistent with the accounting policies adopted in the latest annual consolidated accounts of CLIG in accordance with LR 13.5.4R of the Listing Rules.

 

3.  Funds under Management for each of CLIG and KMI are derived from internal management records.

 

4.  In this announcement, any reference to pro forma financial information is to information which has been prepared in a manner consistent with the accounting policies and presentation adopted by the Group in its unaudited 2020 Interim Financial Statements for the six months period ended 31 December 2019.

 

5.  The unaudited pro forma profit before tax of the Enlarged Group for the six months ended 31 December 2019 has been prepared based on the unaudited income statement of the Group for the six months ended 31 December 2019 and the unaudited income statement of KMI for the six months ended 31 December 2019 to illustrate the effect on the income statement of the Group as if the Merger had taken place on 1 July 2019 and before transaction expenses. No account has been taken of any results of other activity since 31 December 2019.

 

6.  The unaudited pro forma net assets of the Enlarged Group has been prepared based on the unaudited balance sheet of the Group as at 31 December 2019 and the unaudited balance sheet of KMI as at 31 December 2019 to illustrate the effect on the net assets of the Group as if the Merger had taken place on 31 December 2019 and before transaction expenses.

 

7.  The unaudited pro forma profit before tax of the Enlarged Group and the unaudited pro forma net assets of the Enlarged Group have each been prepared for illustrative purposes only and, because of its nature, addresses a hypothetical situation and does not, therefore, represent the Group's or KMI's actual financial position or results. It may not therefore give a true picture of the Enlarged Group's or KMI's financial position or results, nor is it indicative of the results that may or may not be achieved in the future.

 

 


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