REG - European Assets Tst - Combination with ESCT

European Assets TrustAnnouncement

23/06/2025 07:00

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RNS Number : 8620N  European Assets Trust PLC  23 June 2025

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION.

 

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE,
PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN
OR INTO, THE UNITED STATES OF AMERICA (INCLUDING ITS TERRITORIES AND
POSSESSIONS, ANY STATE OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA),
AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, THE REPUBLIC OF South Africa, In any
Member State of the EEA OR IN ANY OTHER JURISDICTION IN WHICH THE SAME WOULD
BE UNLAWFUL.

 

This announcement is not an offer to sell, or a solicitation of an offer to
acquire, securities in the United States or in any other jurisdiction in which
the same would be unlawful. Neither this announcement nor any part of it shall
form the basis of or be relied on in connection with or act as an inducement
to enter into any contract or commitment whatsoever.

 

Legal Entity Identifier: 213800N61H8P3Z4I8726

 

23 June 2025

 

European Assets Trust PLC ("EAT")

 

Combination with The European Smaller Companies Trust PLC ("ESCT")

 

 

Introduction

The board of EAT is pleased to announce that heads of terms have been agreed
for a combination of EAT and ESCT (the "Transaction"). The combination will be
undertaken through a scheme of reconstruction of EAT under section 110 of the
Insolvency Act 1986 (the "Scheme"), under which EAT shareholders will be
entitled to elect to receive new shares in ESCT or cash which on an aggregate
basis will be limited to 15 per cent. of EAT's shares in issue (excluding
treasury shares).

The Scheme will create a combined entity with significant scale, which is
expected to deliver cost efficiencies for both continuing EAT and ESCT
shareholders. Janus Henderson Investors ("JHI") will continue to manage the
enlarged ESCT's portfolio in accordance with ESCT's existing investment
objective and investment policy. Subject to completion of the Scheme, ESCT
will adopt a new dividend policy.

Rationale and Benefits of the Transaction

As outlined in the EAT's latest annual report, the Board recognises EAT's
longer term underperformance and has been steadfast in prioritising
Shareholders' interests. The Board has therefore been considering all
opportunities to deliver improved performance for Shareholders, including the
Transaction, which is expected to result in the following substantial benefits
for both continuing EAT and ESCT shareholders:

·     Attractive opportunity in European small and mid cap companies: The
respective boards and JHI believe that the outlook for the enlarged ESCT is
compelling and provides investors with exposure to dynamic European small and
medium sized businesses within a portfolio run by an experienced team, led by
Ollie Beckett, whose strategy has delivered long-term outperformance over
ESCT's benchmark.

 

·    Strong investment performance: ESCT has generated NAV total return per
share of 3.2 per cent., 26.2 per cent., 95.5 per cent., and 194.8 per cent.,
respectively, over the one, three, five and 10 years to 30 May 2025 with
outperformance over the benchmark MSCI Europe ex UK Small Cap index over
three, five and 10 years to 30 May 2025. This compares to EAT's NAV total
return per share of 1.1 per cent., 11.5 per cent., 27.3 per cent., and 66.1
per cent., respectively over the same period(1).

 

·   Scale: On the basis of the two companies' respective net asset values as
at 30 May 2025, the enlarged ESCT would have net assets of approximately £780
million pursuant to the terms of the Scheme, making it the largest constituent
of the AIC's European Smaller Companies sector. The scale of the enlarged ESCT
should improve the market liquidity for both sets of shareholders.

 

·    Improved share rating: EAT's shareholders are expected to benefit from
an immediate uplift in value of over 3.2 per cent. given the relative ratings
of the two companies, with ESCT currently trading on a discount of 7.3 per
cent. and EAT currently trading on a discount of 10.2 per cent.

 

·      New dividend policy: subject to completion of the Scheme, ESCT
has committed to a new dividend policy with the intention of paying quarterly
dividends in respect of each financial year targeting a total of at least 5
per cent. of its NAV per share as at the end of the preceding financial year.

 

·   Discount control mechanisms: ESCT already has in place a mid-single
digit discount target and conditional tender offers as further detailed below,
which aim to provide shareholders with stability in the ESCT rating.

 

·    Reduced management fee: subject to completion of the Scheme, JHI has
agreed to reduce the initial tier of its base management fee from 0.55 per
cent. to 0.50 per cent. of net assets; on net assets above £800 million the
fee will be unchanged at 0.45 per cent. This compares favourably to the
existing blended EAT management fee of 0.69 per cent, comprised of 0.75 per
cent. on assets below €300 million and 0.55 per cent. above €300 million.

 

·    Lower ongoing charges: Continuing EAT and ESCT shareholders will
benefit from an estimated annual ongoing charge of 0.70 per cent. on a
normalised basis, a 31 basis point reduction compared with EAT's latest
reported ongoing charge of 1.01 per cent.

 

·     Cost Contributions: Continuing EAT and ESCT shareholders will be
largely insulated from the costs of the Scheme as a result of the Cost
Contributions (as defined below), as a result of which any impact to NAV per
share for shareholders of the enlarged ESCT is expected to be immaterial.

 

The Scheme

The Scheme will be effected by way of a scheme of reconstruction of EAT under
section 110 of the Insolvency Act 1986, resulting in the voluntary liquidation
of EAT and the transfer of certain of EAT's assets to ESCT in consideration
for the issue of new ordinary shares of ESCT ("New ESCT Shares") to EAT
shareholders who elect (or are deemed to elect) to roll over into ESCT (the
"Rollover Option"). The number of New ESCT Shares issued to EAT shareholders
will be determined on a Formula Asset Value ("FAV") for FAV basis.

In accordance with customary practice for such transactions involving
investment trusts, the City Code on Takeovers and Mergers is not expected to
apply to the Scheme. The Scheme will be subject to, inter alia, the approval
of both EAT and ESCT shareholders, in addition to tax clearances and
regulatory approvals. Subject to, and conditional on, the Scheme becoming
unconditional, qualifying EAT shareholders will be entitled to elect to
receive in respect of some, or all, of their EAT shares:

i.   new ESCT Shares; and/or

ii.   cash, which option will be limited, on an aggregate basis, to 15 per
cent. of EAT's shares in issue (excluding treasury shares) (the "Cash
Option").

Should total elections for the Cash Option exceed 15 per cent. of EAT's shares
in issue (excluding treasury shares), excess elections for the Cash Option
will be scaled back on a pro rata basis.

New ESCT Shares will be issued as the default option under the Scheme in the
event that EAT shareholders do not make a valid election under the Scheme or
only elect for the Cash Option in respect of a proportion of their shares, or
to the extent elections for the Cash Option are scaled back as a result of the
Cash Option being oversubscribed. The Cash Option will be offered at a
discount of 2 per cent. to the EAT FAV per Share (the "Cash Discount").

The "EAT FAV" will be the EAT NAV (including current year income) as at the
calculation date, adjusted for:

(i)       the costs of the Scheme not accrued in the EAT NAV;

(ii)      any dividends declared but not paid (including any final
pre-liquidation dividend required to be paid to maintain Investment Trust
status); and

(iii)     the liquidator's retention (to meet unknown and unascertained
liabilities of EAT).

The "ESCT FAV" will be the ESCT NAV (including current year income) as at the
calculation date, adjusted for: (i) the costs of the Scheme not accrued in the
ESCT NAV; (ii) any dividends declared but not paid, if appropriate; and (iii)
an adjustment necessary to reflect the benefit of the Cost Contributions (as
defined below). The "EAT Rollover FAV" will be the EAT FAV as at the
calculation date, adjusted to reflect the benefit of the Cost Contributions.

The New ESCT Shares will be issued on the basis of the ratio between the ESCT
FAV per share and the EAT Rollover FAV per share.

The Cost Contributions

JHI has agreed to make a contribution to the costs of the Scheme for an amount
equal to nine months of its revised management fee on the value of the assets,
as at the calculation date, to be transferred to ESCT pursuant to the Scheme
(the "JHI Cost Contribution").  The JHI Cost Contribution may, at JHI's
discretion, be effected by way of an offset against management fees.

Each company will bear its own costs relating to the Scheme. The benefit of
the JHI Cost Contribution and the Cash Discount (together the "Cost
Contributions") shall be apportioned between the EAT Rollover FAV and the ESCT
FAV such that the impact of the total costs of the Scheme, net of the Cost
Contributions, on the value of the holdings of the ESCT shareholders and the
continuing EAT shareholders, will be equivalent, or very nearly equivalent.

ESCT's New Dividend Policy

ESCT proposes to adopt a new dividend policy to target an annual distribution
equal to at least 5 per cent. of its prior year end NAV on a quarterly basis
(four dividends of 1.25 per cent.), to be paid out of revenue and, to the
extent necessary, capital reserves. It is important for EAT and ESCT
shareholders to note that there is no proposed change to ESCT's investment
objective or investment policy, nor to JHI's approach to investment or to the
current benchmark. It is intended that ESCT's new target dividend policy would
provide a material uplift to its current yield, more in line with EAT's
current annual distribution policy of paying 6 per cent. of its prior year end
NAV.

 

 

ESCT's Reduced Base Management Fee

As part of the Transaction, and conditional upon the Scheme being implemented,
the ESCT Board and JHI have agreed a new competitive management fee structure
pursuant to which JHI will be paid an annual fee for its management services
to the enlarged ESCT, calculated as follows:

i.   0.50 per cent. on the first £800 million of ESCT's net asset value
(reduced from 0.55 per cent.); and

ii.   0.45 per cent. on ESCT's net asset value over £800 million.

The new management fee structure will apply immediately upon completion of the
Scheme. There will be no change made to the performance fee arrangements,
payment frequency or other payment terms in respect of the management fee
payable to JHI under its investment management agreement with ESCT.

ESCT's performance fee is measured over a rolling three-year period,
calculated as 15 per cent. of the positive difference between the average
annual NAV total return (with gross income reinvested) and the average annual
total return of the MSCI Europe ex UK Small Cap Index benchmark, subject to a
1 per cent. hurdle.  The management fee and performance fee are capped at 2.0
per cent. of the NAV at the last day of the relevant calculation period.

ESCT's Share Buyback Policy

ESCT has previously stated its intention to use share repurchases to target a
mid-single digit discount in normal market conditions. As a result of this
policy continuing EAT shareholders are expected to benefit from continued
stability of the ESCT share rating, as well as an uplift in the absolute
rating of their shareholding.

ESCT Conditional Tender Offer

ESCT has also previously stated its intention to make a three-yearly
performance conditional tender offer to shareholders for up to 15 per cent. of
ESCT's issued share capital (excluding shares held in treasury), at a price
equal to the prevailing NAV per share less 2 per cent. less costs, in the
event ESCT's NAV total return does not exceed the benchmark total return over
each performance period. The initial performance period commenced on 5
February 2025 and shall continue to the financial year-end on 30 June 2028,
with subsequent performance periods being every three years thereafter. This
additional liquidity mechanism will offer shareholders of the enlarged ESCT
with a partial exit at close to NAV should there be future periods of
underperformance.

The CT Savings Plans

Shareholders in EAT who have invested through the CT Savings Plans, who are
eligible to participate in the Scheme, will be treated the same as all other
eligible EAT shareholders and will be entitled to elect for the Cash Option on
the same terms. Following completion of the Scheme, Columbia Threadneedle
Investments is expected to write to all CT Savings Plans members setting out
their options in relation to their holding of any New ESCT Shares. For those
members of the CT Savings Plans that are holding New ESCT Shares and wish to
remain within the CT Savings Plans, the New ESCT Shares held by these
shareholders may be sold in the market. As part of the Scheme, ESCT will
continue to target a mid-single digit discount, in normal market conditions,
in line with its discount management policy, and to the extent required will
seek additional shareholder authorities to do so.

Board Structure

Following completion of the Scheme, it is expected that the Board of ESCT will
comprise a combination of the ESCT and EAT Directors, with up to two EAT
Directors joining the ESCT Board.

Expected Timetable

It is intended that the documentation in connection with the Scheme will be
posted to each of ESCT's and EAT's shareholders in September 2025 with a view
to convening general meetings thereafter. The Scheme is expected to conclude
by the end of October 2025.

EAT Dividends

EAT has, today, declared its third quarterly dividend of 1.38 pence per share
which will be paid on 31 July 2025. Any pre-liquidation dividend, if required,
will be declared and paid prior to the completion of the Scheme.

EAT Annual General Meeting

EAT's Annual General Meeting is being held at 3.00 pm on 24 June 2025 at the
offices of Columbia Threadneedle Investments, Cannon Place, 78 Cannon Street,
London EC4N 6AG.  As a consequence of this announcement, this meeting will
now be procedural, dealing only with the resolutions being put to the meeting
and will no longer include a presentation by the investment manager. In
addition, the Annual General Meeting will no longer be broadcast live on the
Investor Meet Company platform.

Stuart Paterson, Chairman of European Assets Trust PLC, said:

 

"The EAT Board have considered a variety of options in order to address the
performance issues of EAT and believes the proposed combination of EAT with
ESCT will provide shareholders with access to a larger, more liquid, lower
cost vehicle with a strong long term performance track record. The strategy
remains focussed on the attractive European Smaller Companies sector and
ESCT's new dividend policy is intended to provide EAT shareholders with an
attractive yield. We have consulted a number of our largest shareholders who
have indicated their support and we believe the combination is very attractive
for shareholders as a whole.

 

We would like to thank Columbia Threadneedle Investments for their
professionalism and longstanding support they have provided to the Company and
the Board."

 

James Williams, Chairman of The European Smaller Companies Trust PLC, said:

 

"The ESCT Board is delighted to announce the proposed combination of ESCT and
EAT. ESCT has seen a significant change in the composition of its share
register following its recent tender offer. This has provided a stable
platform which, alongside the strong long term performance delivered by JHI,
has enabled the ESCT Board to agree the terms of a combination with EAT. The
ESCT Board would like to thank ESCT shareholders for their support, and
believe the combination is the first step towards the future growth of ESCT
for the benefit of all shareholders."

 

Notes:

1 - based on the respective published net asset values of ESCT and EAT as at
and up to 30 May 2025.

 

Enquiries:

European Assets Trust PLC

Contact via Panmure Liberum Limited

 

Panmure Liberum Limited

Alex Collins / Ashwin Kohli (Corporate Advisory)

Tom Scrivens (Corporate Broking)

+44 (0)20 3100 2000

 

Corporate Secretary to European Assets Trust PLC

Columbia Threadneedle Investment Business Limited

+44 (0)131 573 8300

 

This announcement contains information that is inside information for the
purposes of Article 7 of the UK version of Regulation (EU) No. 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as
amended (the Market Abuse Regulation). The person responsible for arranging
for the release of this announcement on behalf of European Assets Trust PLC is
Columbia Threadneedle Investment Business Limited. Upon the publication of
this announcement, this information is considered to be in the public domain.

 

The information in this announcement is for background purposes only and does
not purport to be full or complete. No reliance may be placed for any purpose
on the information contained in this announcement or its accuracy or
completeness. The material contained in this announcement is given as at the
date of its publication (unless otherwise marked) and is subject to updating,
revision and amendment. In particular, any proposals referred to herein are
subject to revision and amendment.

 

The New ESCT Shares have not been, and will not be, registered under the U.S.
Securities Act of 1933 (as amended) (the "Securities Act") or with any
securities regulatory authority of any state or other jurisdiction of the
United States, and may not be offered or sold in the United States or to, or
for the account or benefit of, U.S. persons absent registration or an
exemption from registration under the Securities Act. Moreover, the New ESCT
Shares have not been, nor will they be, registered under the applicable
securities laws of Australia, Canada, Japan, New Zealand, the Republic of
South Africa, or any member state of the EEA (other than any member state of
the EEA where the shares are lawfully marketed). Further, ESCT is not, and
will not be, registered under the US Investment Company Act of 1940, as
amended.

 

The value of shares and the income from them is not guaranteed and can fall as
well as rise due to stock market and currency movements. When you sell your
investment you may get back less than you originally invested. Figures refer
to past performance and past performance should not be considered a reliable
indicator of future results. Returns may increase or decrease as a result of
currency fluctuations.

 

This announcement may include statements that are, or may be deemed to be,
"forward-looking statements". These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms
"believes", "estimates", "anticipates", "expects", "intends", "may", "might",
"will" or "should" or, in each case, their negative or other variations or
similar expressions. All statements other than statements of historical facts
included in this announcement, including, without limitation, those regarding
EAT's or ESCT's respective financial positions, strategies, plans, proposed
acquisitions and objectives, are forward-looking statements.

 

Forward-looking statements are subject to risks and uncertainties and,
accordingly, EAT's or ESCT's actual future financial results and operational
performance may differ materially from the results and performance expressed
in, or implied by, the statements. These forward-looking statements speak only
as at the date of this announcement and cannot be relied upon as a guide to
future performance. Subject to its legal and regulatory obligations, EAT
expressly disclaims any obligations or undertaking to update or revise any
forward-looking statements contained herein to reflect any change in
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based unless required to do so by
law or any appropriate regulatory authority.

 

Panmure Liberum Limited ("Panmure Liberum") which is authorised in the United
Kingdom by Financial Conduct Authority is acting exclusively for EAT and for
no-one else in connection with the Transaction, will not regard any other
person as it client in relation to the Transaction and will not be responsible
to anyone other than EAT for providing the protections afforded to its clients
or for providing advice in relation to the Transaction, or any of the other
matters referred to in this announcement. This does not exclude any
responsibilities or liabilities of Panmure Liberum under the Financial
Services and Markets Act 2000, as amended, or the regulatory regime
established thereunder.

 

None of EAT or Panmure Liberum, or any of their respective affiliates, accepts
any responsibility or liability whatsoever for, or makes any representation or
warranty, express or implied, as to this announcement, including the truth,
accuracy or completeness of the information in this announcement (or whether
any information has been omitted from the announcement) or any other
information relating to any of them, whether written, oral or in a visual or
electronic form, and howsoever transmitted or made available or for any loss
howsoever arising from any use of the announcement or its contents or
otherwise arising in connection therewith. Each EAT and Panmure Liberum, and
their respective affiliates, accordingly disclaim all and any liability
whether arising in tort, contract or otherwise which they might otherwise have
in respect of this announcement or its contents or otherwise arising in
connection therewith.

 

 

 

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