REG - Henderson Euro Trust Fidelity Euro. Trust - Result of Board Review

Fidelity European TrustAnnouncement

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RNS Number : 4829N  Henderson European Trust Plc  19 June 2025

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 Henderson European Trust plc
is Janus Henderson Secretarial Services UK Limited acting as corporate
secretary.

 

19 June 2025

 

Henderson European Trust plc ("HET" or the "Company")

 

Result of Board Review

 

Proposed combination with Fidelity European Trust PLC ("FEV")

 

Result of Board Review

 

·    The HET board has completed a comprehensive review of potential
options for the Company's future following the resignation of both
co-portfolio managers from Janus Henderson Investors ("JHI") on 31 January
2025.

·     The board engaged with shareholders early in the review process and
considered viable options based on the feedback received.

·      The board concluded that a combination with FEV pursuant to a
scheme of reconstruction of HET under section 110 of the Insolvency Act 1986,
creating a much larger European investment trust with expected net assets of
approximately £2.1 billion 1  (#_ftn1) , was the best outcome for
shareholders.

 

Proposed combination with FEV is expected to enable HET shareholders to
benefit from:

 

·     an experienced and award-winning portfolio management team supported
by Fidelity's extensive equity research resource, focused on high-quality,
predominantly large-cap, European equities.

·      a larger company with economies of scale, increased secondary
market trading liquidity and enhanced marketability.

·      an enhanced discount management policy supporting a mid-single
digit discount to NAV.

·     a 12-month management fee waiver on the assets transferred to FEV
following which, in combination with the cash exit at HET, is currently
expected to result in the transaction being marginally NAV accretive for
rolling HET shareholders. 2  (#_ftn2)

·    introduction of a new, competitive fee structure which, when combined
with the enhanced scale, is forecasted to result in a lower OCR for HET's
shareholders.

·     an immediate uplift in market value of their shareholding, expected
to be in excess of 6% 3  (#_ftn3) based on HET's current share price discount.

·    a cash exit alternative of up to 33.3% of the Company's issued share
capital at a 1.75% discount to the residual formula asset value.

 

The board has received indications of support for the proposal from
shareholders representing an aggregate of c.33% of HET's issued share capital.

 

Vicky Hastings, Chair of Henderson European Trust, commented:

 

"The sudden departure of the Company's two co-portfolio managers, together
with our subsequent engagement with shareholders, prompted the Board to
undertake a comprehensive review aimed at maximising value for all
shareholders over the long-term. The process was well informed by shareholder
feedback, which made it clear that, given the material turn of events, all
viable options should be considered.

 

"The Board was particularly impressed by the number and calibre of proposals
received, including from the incumbent manager, Janus Henderson. However,
following a full and thorough process, the Board concluded that a combination
with FEV represents the best outcome for our shareholders.

 

"We would like to thank Janus Henderson for their professionalism throughout
this review and for the longstanding support they have provided to the Company
and the Board."

 

Background to board review of options

 

On 3 February 2025, the board of HET announced that it had been notified that
the Company's two co-portfolio managers, Tom O'Hara and Jamie Ross, had
resigned from JHI, the Company's investment manager.

 

With effect from 3 February 2025, Robert Schramm-Fuchs and Nick Sheridan
assumed interim joint responsibility for the management of the Company's
portfolio under the same approach seeking to maximise total return from a
portfolio of stocks predominantly listed in Europe (excluding the UK).

 

Given the material impact to the Company of its two co-portfolio managers'
resignations, the board, via Deutsche Numis, solicited shareholder views on
the best route for the strategic direction of the Company. Following feedback
received from a significant proportion of the Company's shareholders, the
board subsequently resolved to undertake a comprehensive review of the
Company's options and engaged Deutsche Numis to provide advice and manage the
process. It also sought advice from WTW, an investment consultant, to provide
analysis, perspective and opinion on the investment component.

 

The board received a number of interesting proposals from (i) JHI, (ii)
existing investment companies looking to consolidate and (iii) other
investment management firms proposing to manage the Company.

 

After a comprehensive RFP and pitch process, the board concluded that a
combination with FEV provided a highly compelling option for shareholders.

 

Combination with FEV

 

The boards of HET and FEV are pleased to announce that the companies have
entered into heads of terms for a combination of the two companies, which will
see part of HET's cash, assets and undertaking roll into FEV in exchange for
the issue of new ordinary shares in FEV ("New FEV Shares") to continuing HET
shareholders (the "Transaction"). FEV's investment manager, Fidelity, will
continue to manage the combined entity (the "Combined Entity") in accordance
with FEV's current investment objective and policy, with FEV's experienced and
award-winning portfolio managers, Sam Morse and Marcel Stötzel, continuing as
portfolio managers.

 

HET shareholders will have the option to elect for a cash exit (the "Cash
Option") as part of the Transaction. The Cash Option will be priced at a 1.75%
discount to the Company's residual formula asset value per share (the "Cash
Option Discount") as at a calculation date to be agreed by HET and FEV (the
"Calculation Date"), less the further costs of any realisations required to
fund the Cash Option, and limited to 33.3% of HET's shares in issue (excluding
treasury shares).

 

Assuming full take up of the Cash Option, the Combined Entity is expected to
have net assets in excess of £2.1 billion.

 

Benefits of the Transaction to HET shareholders

 

·     Access to market-leading investment prowess in Europe: as the
"go-to" UK closed-ended vehicle for investment in Europe, the Combined Entity
is expected to benefit from an enhanced profile and marketability following
the combination with HET.

 

·      Unparalleled scale: the Combined Entity is expected to have net
assets in excess of £2.1 billion, making it the largest in the European
investment company sector by a significant margin. HET shareholders are
expected to benefit from economies of scale through improved economics,
enhanced resources available to promote the Combined Entity to new as well as
existing investors and through increased secondary market trading liquidity.

 

·   Experienced and award-winning portfolio managers with strong long-term
investment performance: the Combined Entity will be managed by Fidelity's
award-winning co-portfolio managers, Sam Morse and Marcel Stötzel, whose
systematic approach to managing investments benefits from the support and
resource of Fidelity's extensive equity research platform (126 global equity
research analysts, 33 of which cover Europe directly). This team has
consistently been one of the sector's top performers and has consistently
outperformed FEV's benchmark index (FTSE World Europe ex.UK Index) over the
medium and longer term. 4  (#_ftn4)

 

·     Continuity of investment style and approach: both HET and FEV have
aimed to deliver long-term growth in both capital and income through
investment in a portfolio of high-quality, predominantly large-cap, European
equities. FEV's investment style would provide continuity for HET's
shareholders in that its portfolio managers focus on finding attractively
valued companies, with good prospects for cash generation and dividend growth
over the longer term, with positioning driven by opportunities at the
individual stock level rather than macro developments.

 

·     Narrowest discount in the AIC Europe sector: FEV currently trades on
the narrowest discount in the AIC Europe sector at 2.7% and has the narrowest
1-year average at 5.9%. Alongside the attractive long-term prospects for the
Combined Entity, the Combined Entity's liquidity, and narrow discount, should
also provide HET shareholders with greater opportunities to realise their
investment through the market should they wish to do so. Further, FEV will
introduce an enhanced discount management policy, such that the Combined
Entity will seek to maintain any discount to net asset value in mid-single
digits through buybacks in normal market conditions.

 

·    Significant contribution to costs from Fidelity: Fidelity has agreed
to make a material contribution towards the costs of the Transaction,
equivalent to a waiver of 12 months of management fees that would otherwise be
payable in respect of the assets that would roll over from HET (with an
expected value of c. £2.4 million based on current transaction assumptions
and full take-up of the Cash Option). This contribution would first be applied
to meet the FEV costs in implementing the Transaction (capped at £1.25
million including VAT), with the balance being applied towards, and currently
expected to exceed, the HET Transaction costs.

 

·     Material Cash Option available: HET shareholders will have the option
to elect for the Cash Option as part of the Transaction which is capped at
33.3% of the issued share capital of the Company (excluding treasury shares).
This sizeable Cash Option allows shareholders a choice between continuing
their investment in a well-regarded investment trust in the European equities
sector or receiving cash for part of their investment at an uplift to the
current market value.

 

·   Tangible economic upside for HET shareholders: Rolling HET shareholders
are expected to benefit from an immediate uplift in the market value of their
shareholding estimated at c.6.4% based on HET's current share price discount.
 Owing to the Fidelity Cost Contribution and the Cash Option Discount, the
transaction is also currently expected to be marginally NAV accretive for
rolling HET shareholders (or at least NAV neutral depending upon the level of
take-up of the Cash Option and the value of any benefit arising from the
Fidelity Cost Contribution). 5  (#_ftn5)

 

The Transaction

 

The Transaction will be effected by way of a scheme of reconstruction of HET
under section 110 of the Insolvency Act 1986 (the "Scheme"), resulting in the
voluntary liquidation of HET and the associated transfer of part of HET's
cash, assets and undertaking to FEV in exchange for the issue of New FEV
Shares to continuing HET shareholders. The number of the New FEV Shares issued
to HET shareholders will be determined on a formula asset value ("FAV") for
FAV basis.

 

In accordance with customary practice for such schemes of reconstruction
pursuant to section 110 of the Insolvency Act 1986 involving investment
companies, the City Code on Takeovers and Mergers is not expected to apply to
the proposed combination via the Scheme. The Transaction will be subject to,
inter alia, the approval of both HET and FEV shareholders, in addition to
regulatory and tax approvals.

 

The New FEV Shares will be issued on the basis of the ratio between the FEV
FAV per share and the HET rollover FAV per share. Both FAVs will be calculated
based on the net asset value (cum income and debt at par value) of each
company ("NAV") on the Calculation Date subject to adjustments for any
declared but unpaid dividends, the allocation of transaction costs, the
financial value of the Fidelity Cost Contribution (discussed below) and, in
the case of HET, also taking account of the liquidator's retention and the
application of the Cash Option Discount. More information will be provided in
a circular to be sent to shareholders in due course.

 

Each company will bear its own costs incurred in relation to the Transaction.

 

Fidelity has agreed to make a material contribution towards the costs of the
Transaction by means of a waiver, pursuant to the management agreement between
Fidelity and FEV, of the management fees that would otherwise be payable by
the enlarged FEV to Fidelity in respect of the assets to be transferred by HET
to FEV pursuant to the Transaction for the 12 month period immediately
following the Scheme becoming effective, calculated by reference to the
revised fee rate thresholds and marginal fee rates set out in the paragraph on
updated management fee arrangements below (the "Fidelity Cost Contribution").
For the purposes of the Scheme, the financial value of the Fidelity Cost
Contribution (calculated as at the Calculation Date) will first be credited to
the FEV FAV against any and all FEV Transaction costs up to a maximum of
£1.25 million (inclusive of VAT) and any remaining balance of the Fidelity
Cost Contribution will be credited to the HET rollover FAV (for the benefit of
continuing HET shareholders).

 

HET has issued €35 million of privately placed loan notes (the "HET Notes").
With the assistance of its appointed adviser, Centrus Financial Advisors, HET
will be seeking the consent of the HET Noteholders to novate the HET Notes to
FEV prior to completion.

 

Updated management fee arrangements

 

Subject to the Scheme becoming effective in accordance with its terms,
Fidelity and FEV have agreed to amend the management agreement between them
such that the annual management fee payable to Fidelity will be as set out
below with effect from the admission of the New FEV Shares to trading on the
Main Market and to listing of the FCA's Official List.

 

 Tier (net assets)                           Annual management fees 6  (#_ftn6)
 Less than £400 million                      0.70%
 £400 million to £1.4 billion (inclusive)    0.65%
 Greater than £1.4 billion                   0.55%

 

 

Discount management

 

In the light of the Transaction, the FEV board has agreed to enhance its
discount management policy such that FEV will seek to maintain any discount to
NAV in mid-single digits in normal market conditions.

 

Dividends

 

HET intends to pay its previously announced interim dividend for the financial
year ending 30 September 2025 of 1.40 pence per share on 27 June 2025 to those
shareholders on the HET register on 30 May 2025, with an ex-dividend date of
29 May 2025. It is also expected that HET will declare and pay a second
interim dividend prior to liquidation.

 

As an 'AIC next generation dividend hero', FEV has a reliable track record of
dividend growth and the FEV board intends to continue to grow the Combined
Entity's dividend progressively, as FEV has done for the previous 13 years,
whilst continuing to pay dividends entirely from income and maintaining
healthy dividend cover.

 

Board composition

 

To provide continuity and representation for HET shareholders, and in
accordance with the FEV board's near-term succession planning, it is expected
that the Combined Entity's board will have representation from the current HET
board on completion of the Transaction.

 

Expected timetable

 

Documentation in connection with the proposals will be posted to shareholders
as soon as practicable, with a view to convening general meetings in early to
mid-September 2025 and the Transaction being completed by the end of September
2025. Completion of the Transaction will be conditional upon, inter alia,
approval from the shareholders of both companies and Financial Conduct
Authority approval in relation to the publication of the FEV prospectus. The
expected timetable in respect of the Transaction remains subject to change
and, in particular, may be impacted by the treatment of the HET Notes under
the Scheme.

 

 

For further information please contact:

 

 Henderson European Trust plc

 Vicky Hastings                                                Contact via Deutsche Numis

 Chair of the Board

 Deutsche Numis, Sole Corporate Broker and Financial Adviser

 Nathan Brown                                                  Tel. 020 7547 0569

 Matt Goss                                                     E. nathan.brown@db.com (mailto:nathan.brown@db.com)

                                                               Tel. 020 7547 0541

                                                               E. matt.goss@db.com (mailto:matt.goss@db.com)

 Greenbrook, PR Adviser
 Peter Hewer                                                   Tel. 020 7952 2000

 Rob White                                                     E. HendersonEuropeanTrust@greenbrookadvisory.com

                                                             (mailto:HendersonEuropeanTrust@greenbrookadvisory.com)
 Alan Tovey

 Teresa Berezowski

 

 

Legal Entity Identifier

213800GS89AL1DK3IN50

 1  (#_ftnref1) Based on the net assets of each company as at close of
business on 18 June 2025 and assuming full take-up of the Cash Option by HET
shareholders.

 2  (#_ftnref2) Based on a combination of FEV and HET as at 17 June 2025 (with
net assets of approximately £1.7 billion and £640 million respectively),
current cost estimates and assuming (i) there are no dissenting HET
shareholders and (ii) 33.3% of HET shares are validly elected for the Cash
Option (such that the Cash Option is fully subscribed). Figures exclude any
impact of HET portfolio realisation costs in connection with the Scheme and
acquisition costs (including any commissions, taxes (including stamp duty or
equivalent), transaction charges and/or market charges) associated with the
transfer of assets from HET to FEV. All figures are illustrative only, using
currently available information and estimates, and are subject to change.

 3  (#_ftnref3) The figures and expectations set out in this paragraph are
based on the Transaction assumptions set out in Note (2) above.

 4  (#_ftnref4) Calculated on a total return basis in GBP.

 5  (#_ftnref5) The figures and expectations set out in this paragraph are
based on the Transaction assumptions set out in Note (2) above.

 6  (#_ftnref6) The current estimated blended fee rate on completion of the
Transaction is 0.625%  per annum (based on the Transaction assumptions set
out in Note (2) above).

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