Gabelli Merger Plus+ Gabelli Merger -GMPP - Half-year Report
28/03/2024 17:13
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RNS Number : 7993I Gabelli Merger Plus+ Trust PLC 28 March 2024
GABELLI MERGER PLUS(+) TRUST PLC
Half-Yearly Financial Report For the six months ended 31 December 2023
"We invest like owners. We invest primarily in the equity securities of cash
generating, franchise companies, selling in the public market at a significant
discount to our appraisal of their Private Market Value. We define Private
Market Value (PMV) as the value an informed industrialist would pay to
purchase assets with similar characteristics in a privately negotiated
transaction. We measure PMV by scrutinizing on-and off-balance sheet assets
and liabilities and free cash flow. As a reference check, we examine
valuations and merger transactions in the public domain. Our investment
objective is to achieve a long term annualised return in excess of inflation
for our clients."
Our Investment Approach
Continuing a Value Investing Legacy
· Our Firm's approach is founded on the principles of Graham
& Dodd
· Furthered academically by our founder Mario Gabelli
· Establish values to determine margin of safety
· Invest within circle of competence
· Invest like owners of businesses
· Intensive proprietary research culture
· Focused and rigorous independent fundamental analysis in
valuing the underlying business using publicly available information including
data from customers, competitors, products and new technologies
· Announcement of a merger with definitive terms starts the
process
· Merger investing benefits from the Gabelli core fundamental
approach by establishing real world value before initiating positions
Portfolio
Identify Catalysts
Private Market Value (PMV)
Gabelli Research Universe
Gabelli supplements the principles of Graham & Dodd through the
implementation of our proprietary Private Market Value (PMV) with a
Catalyst™ approach
Gabelli Merger Plus + Trust Plc's primary investment objective is to seek to
generate total return consisting of capital appreciation and current income
for the long term.
CONTENTS
Overview
Portfolio Summary 02
Financial highlights 03
Chairman's Statement 04
Interim Management Report and Responsibility Statement 08
The Search for Value - Gabelli Merger Plus+ Investment Methodology 11
Portfolio Manager's review 15
Financial Statements
Statement of comprehensive income 20
Statement of changes in equity 22
Statement of financial position 24
Notes to the financial statements 26
Company Information 55
Overview
Portfolio summary
Largest Portfolio Security holdings (excluding cash and cash equivalents)
(Unaudited)
As at 31 December 2023
Security(1) Offsetting short position(2) % of total Market Offsetting % of total
portfolio(6) value(4) market portfolio(3)
(gross) $000 value(5) (net)
$000
U.S. Treasury Bill 8 Feb 2024 15.4 9,449 - 15.4
Pioneer Natural Resources Co Exxon Mobil Corp 5.8 3,574 (3,690) (0.2)
Hess Corp Chevron Corp 5.8 3,553 (3,770) (0.4)
U.S. Treasury Bill 11 Jan 2024 5.7 3,495 - 5.7
U.S. Treasury Bill 15 Feb 2024 5.7 3,478 - 5.7
--------------- --------------- --------------- ---------------
Splunk Inc 5.0 3,070 - 5.0
U.S. Treasury Bill 1 Feb 2024 4.9 2,987 - 4.9
PNM Resources Inc 3.9 2,403 - 3.9
Capri Holdings Ltd 3.5 2,165 - 3.5
Amedisys Inc 3.3 2,011 - 3.3
--------------- --------------- --------------- ---------------
U.S. Treasury Bill 25 Jan 2024 3.2 1,993 - 3.2
Dechra Pharmaceuticals plc 3.2 1,989 - 3.2
U.S. Treasury Bill 22 Feb 2024 3.2 1,985 - 3.2
U.S. Treasury Bill 14 Mar 2024 3.2 1,979 - 3.2
Albertsons Cos Inc 3.1 1,922 - 3.1
--------------- --------------- --------------- ---------------
Immunogen Inc 3.0 1,835 - 3.0
Cerevel Therapeutics Holding Inc 2.1 1,264 - 2.1
Network International Holdings Plc 1.9 1,148 - 1.9
Westrock Co Smurfit Kappa Group 1.8 1,111 (1,055) 0.1
United States Steel Corp 1.6 997 - 1.6
--------------- --------------- --------------- ---------------
Subtotal Top 20 Holdings 85.3 52,408 (8,515) 71.5
Other holdings(7) 14.7 19,004 (1,467) 28.5
--------------- --------------- --------------- ---------------
Total holdings 100.0 71,412 (9,982) 100.0
========= ========= ========= =========
1 Long position.
2 Offsetting position taken, based on the acquirer of the security
when acquirer stock is being offered in whole, or in part, to finance the
transaction.
3 Represents the total position value (market value plus the
offsetting market value) as a percentage of the total portfolio value.
4 Market value of the long position.
5 Market value of the offsetting position.
6 Represents the market value as a percentage of the total portfolio
value.
7 Including derivatives.
Portfolio allocation %
Equities 61.2
Fixed income 42.1
Derivatives (contracts for difference) (3.3)
---------------
Total 100.0
=========
Financial Highlights
Performance
(Unaudited) (Unaudited) (Audited)
As at As at As at
31 December 2023 31 December 2022 30 June 2023
Net asset value (cum income)(1, 2) $10.43 $9.99 $10.22
Net asset value per share (ex income)(3) $10.76 $10.46 $10.52
Dividends per share paid during the period(2, 4) $0.12 $0.00 $0.12
Share price(5) $8.50 $9.00 $9.00
Discount to Net Asset Value(6, 7) 18.17% 9.91% 11.94%
========= ========= =========
Total returns (Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
Net asset value per share(7, 8) 3.31% 6.73% 10.54%
U.S. 3-month Treasury Bill Index 5.35% 2.93% 3.80%
Share price(7, 9) (4.30)% 0.00% 1.33%
========= ========= =========
Income
Per Share Returns (Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
Revenue return per share ($0.05) $0.11 $0.39
Capital return per share $0.38 $0.45 $0.55
Total return per share $0.32 $0.57 $0.94
========= ========= =========
Ongoing charges(7, 10)
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2022
Annualised ongoing charges 2.01% 1.85% 2.17%
========= ========= =========
Source: Portfolio Manager (Gabelli Funds, LLC), verified by the Administrator
(State Street Bank and Trust Company).
1 Net Asset Value (NAV) includes balance sheet adjustments resulting
from the Company now being a close company. Such adjustments include deferred
tax assets as per Note 8, pages 37 and 38.
2 Cum-income net asset value includes all income, less the value of
any dividends paid together with the value of any dividends which have been
declared and marked ex dividend but not yet paid. Where the cum-income NAV is
lower than the ex-income NAV, this reflects the revenue deficit.
3 Ex-Income NAV: Ex-income net asset value is the Cum-income NAV
excluding net income (net income being all income, less the value of any
dividends paid together with the value of any dividends which have been
declared and marked ex-dividend but not yet paid).
4 The dividend paid during the year ended 30 June 2023 was the fourth
interim dividend for the year ended 30 June 2022. Following the Tranche Two
Tender Offer the Board has continued to review and assess the Company's
distribution policy. The Company paid the first interim dividend for the
fiscal year ended 30 June 2023 on 8 September 2023.
5 See Chairman's Statement for discussion regarding the Specialist
Fund Segment of the London Stock Exchange, on which the Company's Ordinary
Shares trade.
6 The amount by which the market price per share is lower than the
cum-income NAV per share, expressed as a percentage of the cum-income NAV per
share. Figures are inclusive of income and dividends paid, in line with the
Association of Investment Companies (the "AIC") guidance.
7 These key performance indicators are alternative performance
measures. Further information regarding the use of alternative performance
measures can be found on page 12 and 68 in the Annual Report and Financial
Statements as at 30 June 2023.
8 Net Asset Value per ordinary share, total return represents the
theoretical return on NAV per ordinary share, assuming that dividends paid to
shareholders were reinvested at the NAV per ordinary share at the close of
business on the day shares were quoted ex-dividend.
9 Share Price Total Return represents the theoretical return to a
shareholder, on a closing market price basis, assuming that all dividends
received were reinvested, without transaction costs, into the ordinary shares
of the Company at the close of business on the day the shares were quoted
ex-dividend.
10 Ongoing Charges are operating expenses incurred in the running of the
Company, whether charged to revenue or capital, but excluding financing costs.
These are expressed as a percentage of the average net asset value during the
period and this is calculated in accordance with guidance issued by the
Association of Investment Companies.
Chairman's Statement
Introduction
Gabelli Merger Plus+ Trust Plc (the "Company") was incorporated in England and
Wales on 28 April 2017. Its shares trade under the symbol "GMP" and have been
listed on the Specialist Fund Segment of the Main Market of the London Stock
Exchange and the Official List of the International Stock Exchange since 19
July 2017.
The Company's objective is to generate total returns, consisting of capital
appreciation and current income. The Company's secondary objective is the
protection of capital, uncorrelated to equity and fixed income markets. The
Company has broad and flexible investment authority and, accordingly, it may
at any time have investments in other related or unrelated areas.
This is the Company's first Half Year report to shareholders as a close
company, while no longer availing itself of investment trust status, as per
Section 1158 of the Corporation Tax Act 2010 ("S1158"). The Company is
classified as an investment company and accordingly is a member of the
Association of Investment Companies ("AIC").
After consultation with minority shareholders, the Company determined that
continued adherence to the AIC's SORP is in the best interests of the
investment company despite no longer remaining S1158 eligible. The largest
shareholder, Associated Capital Group, Inc., is intent on continuing with the
listed vehicle and growing value in the markets in accordance with the
investment policy.
The Deferred Tax Asset ("DTA") increases the book value of the standard
portfolio NAV from $10.01 per share to $10.43 per share as of 31 December
2023. The DTA is expected to preserve tax advantages into the medium term. The
Board believes there is currently no material NAV impact to the Company and
its shareholders from the loss of S1158 status.
The Company's Ordinary Shares trade on the Specialist Fund Segment of the
London Stock Exchange. Secondary liquidity for the Company's Ordinary Shares
is available via the trading system known as SETSqx, which is an auction based
trading process. It is quote based throughout the day, until the auctions at
U.K. times: 8am, 9am, 11am, 2pm and 4:35pm, when buyers and sellers can cross
orders with each other. As there is no market maker, absent a "match" in
prices, a trade would not occur. The closing market price is based on the last
actual trade on the day or from any previous trading session when the last
trade occurred. Thus there would have to be a match at the prescribed auction
times to "meet" on price and quantity for an execution to occur.
The 7½% discount management mentioned in the offering prospectus is not a
policy and the Board instead reviews overall conditions on a regular and
frequent basis.
The Board is always receptive to feedback and welcomes any questions and
comments from shareholders.
Performance
The Company's Net Asset Value ("NAV") at 31 December 2023 was $10.43 per
share, generating a total return of 3.31% for the six months ended 31 December
2023.
The Company has provided a total return of 36.13% since issuance. This
includes the costs of the issue resulting in a starting NAV of $9.92 per share
compared with the issue price of $10.00 per share, and initial closing market
price of $10.15 per share.
Repurchase of Ordinary Shares
On 31 January 2024 the Board announced the commencement of an On-Market
Repurchase ("OMT") via a SETSqx tender. On 16 February 2024 the Company
announced the successful completion of the OMT, in which the Company
repurchased 19,500 Ordinary Shares.
The Fifth Anniversary Tender Offer for Qualifying Registered Shares via two
tranches began in September 2022 and concluded in February 2023. A total of
3,055,957 Qualifying Shares were validly tendered in the Tranche One Tender
Offer and a total of 331,457 Qualifying Shares were validly tendered in the
Tranche Two Tender Offer.
No further buybacks or tenders are to be expected at this time.
Loyalty Programme
The Company has implemented a Loyalty Programme to incentivise long-term share
ownership. The Loyalty Programme is open to all shareholders who are entered
in the Loyalty Register, a separate register to allow a shareholder to
increase its voting power after holding shares for a continuous period of at
least five years. Each shareholder so registered will be entitled to subscribe
for one Special Voting Loyalty Share in respect of each Ordinary Share held.
These shares can also be used as a form of consideration when entering into
one or more agreements to acquire operating businesses in accordance with the
Investment Policy.
Dividend
Through 31 December 2023 the Company paid dividends of $2.51 per Ordinary
Share, totaling $25.1 million:
Year Per share ($) Total ($ million)
2018 0.59 6.1 million
2019 0.48 5.0 million
2020 0.48 5.0 million
2021 0.48 4.9 million
2022 0.24 2.5 million
2023 0.24 1.6 million
--------------- ---------------
Total 2.51 25.1 million
========= =========
Subsequently, in 2024 the Company paid two additional dividends totaling $2.4
million, $0.24 per share with ex-date 15 February and payment date 1 March,
and $0.12 per share with ex-date 29 February and payment date 15 March.
The Company will make quarterly dividend payments as from the quarter ending
31 March 2024 at the discretion of the Board, and using the period's interest
and dividend income earned, among other factors.
Board
On 5 October 2023 the Company named John Birch as non-executive Co-Chairman.
Outlook
We are enthusiastic for the year ahead.
The world has experienced more than its fair share of 100-year events in
recent years. In reality, a burgeoning great power conflict, the forces of
de-globalization, economic alienation, and social fragmentation took decades
to build. The outcome of these shifts is almost surely reduced prosperity and
structurally higher inflation. What may be more difficult for the market to
discount is the erosion of confidence in the presiding liberal economic order.
Although this is a global phenomenon, the U.S. will enjoy a front seat to this
clash with the upcoming election. This unfolds against a record $34 trillion
national debt (120%+ of GDP) rolling over at much higher rates. Net interest
on U.S. debt for the fiscal year ended September 2024 will have more than
doubled from 2020 to approximately $800 billion, the second largest budget
item after social security, crowding out private investment and underpinning
inflation/currency debasement. Under the right leadership, these issues are
addressable.
Leadership at the Federal Reserve may have learned from the past mistake of
staying tight for too long by signaling a desire to cut rates ahead of
significant economic weakness. Leading indicators, such as the PMI, corporate
results, and commentary suggest economic deceleration. Inflation and a
pandemic-bred higher propensity to spend have largely depleted excess consumer
pandemic savings. More recently, however, lower energy costs, steady hours
worked, and reflated asset prices have supported consumption. Infrastructure
and re-shoring projects should continue to bolster corporate investment and
government expenditures (over 30% of GDP). Taken together, we think this puts
the U.S. on track for a "softish" landing in 2024 with an uptick in
unemployment and below trend growth. Absent a geopolitical twist, oil shock,
or systemic financial crisis, we do not anticipate anything approaching the
severity of 2008-2009. Will permissive monetary policy again seed a return to
inflation after emerging from an economic air pocket? Surveys indicate
inflation expectations remain anchored; that may be a problem for another day
as growth is the nearest wall of worry to hurdle. Resilience is on our side.
Global antitrust regulators, primarily led by the Federal Trade Commission
(FTC), took firm stances against anti-competitive transactions in the middle
part of 2023. This resulted in extended reviews of some transactions, but
deals continue to close as buyers and sellers remain bound by their merger
agreements and work to assure antitrust overseers that their transactions are
pro-competitive.
Deal activity is expected to rebound in 2024 against the muted levels seen in
2023. This resurgence is likely to be driven by lower financing costs,
potentially less stringent global antitrust oversight, and a persistent need
for corporations to expand globally, recognising that intelligent acquisitions
can be terrific growth drivers for their companies.
In the current high-yielding environment, it is strategically advantageous to
allocate a portion of the Company's assets to U.S. Treasury bills due to the
numerous benefits they offer. Treasuries stand out for their ability to
provide competitive returns when compared to other fixed-income securities and
given their short-term nature allows for frequent reinvestment at prevailing
interest rates, potentially maximizing the overall yield of the portfolio over
time. Moreover, Treasuries are highly liquid and can be easily bought and sold
without significantly affecting their value. This liquidity not only enhances
the flexibility of the Company's investment strategy but also allows for swift
adjustments in response to changing market conditions.
During the period, a peak in short-term rates prompted by the end of interest
rate hikes by the Fed, combined with an increase in the issuance of government
bills, presented various attractive investment options. This was reflected in
a modest extension of the duration of our portfolio, allowing us to exploit
these opportunities. Looking ahead, yields in the Treasury market will
continue to be influenced by Federal Reserve policy decisions and the supply
of Treasury securities. Given the elevated short end of the Treasury curve and
the Federal Reserve's focus on price stability, we anticipate that the
investment environment for Treasury money market funds will remain attractive.
Our investment strategy will remain adaptable, as we closely monitor how the
financial markets respond to the Federal Reserve's future interest rate
changes.
I extend a welcome to all our shareholders for the next phase of exciting
growth
John Birch Marc Gabelli
Co-Chairman Co-Chairman
28 March 2024
Interim Management Report and Responsibility Statement
We share this 1st Half Report to Shareholders, encompassing the period from
July 2023 through December 2023, and note certain developments post calendar
year end. This period included several important updates for the Gabelli
Merger Plus+ Trust Plc (the "Company") as included in the Chairman's
Statement, which include:
· On 8 September 2023 the Company paid the first interim
dividend for the fiscal year ended 30 June 2023.
· On 5 October 2023 the Company named John Birch as
non-executive Co-Chairman and named Patrick Huvane and Manjit Kalha as
executives. On 30 November 2023 the Company named Gustavo Pifano as an
executive.
· Subsequent to the calendar year end, the Company announced
several measures to return capital to shareholders. The Board of Directors
declared the second and third interim dividends for the financial year ended
30 June 2023 of $0.24 and $0.12 per ordinary share, respectively. These
dividends are payable on 1 March 2024 and 15 March 2024 to shareholders of
record on 16 February 2024 and 1 March 2024, respectively.
· On 31 January 2024 the Board announced the commencement of an
On-Market Repurchase ("OMT") via an ongoing SETSqx tender for up to 5% of the
shares held by minority shareholders or approximately 25,000 shares.
· The Company has elected continued adherence to the AIC's
SORP. Although no longer an investment trust, the Company has elected to
continue to prepare the financial statements on a basis compliant with the
recommendations of the SORP. The SORP is issued by the AIC and it sets out
recommendations, intended to represent current best practice, on the form and
contents of the financial statements of Investment Companies. Investment
Companies include investment trust companies that have been, currently are, or
are directing its affairs so as to enable it to obtain or retain approval
under Section 1158. Although the Company no longer meets the requirements of
section 1158 to be an investment trust, it continues to conduct its affairs as
an investment company.
Gabelli Merger Plus+ Trust Plc ("GMP") seeks to achieve long-term total return
from capital appreciation and income utilising the Gabelli Private Market
Value with a Catalyst(TM) methodology, primarily investing in the securities
of businesses undergoing some form of strategic change where there are
substantial disconnects between market price and business value, and, where
catalysts exist that may narrow these discounts for the benefit of
shareholders. GMP objectives, operating within this highly specialised value
based catalyst event driven merger arbitrage discipline, are to compound and
preserve shareholder wealth over time while remaining non-correlated to the
broad equity and fixed income markets.
The Investment Methodology on pages 11 to 14 provides additional details on
our investment process and how we find value in an effort to achieve, over the
long term, superior risk adjusted annual returns above inflation for
shareholders.
On behalf of the Board of Directors, we thank investors for entrusting a
portion of their assets with the Gabelli Merger Plus+ Trust ("GMP"). We
appreciate your confidence in the Gabelli long-term oriented investment
method.
The Portfolio Manager's Review on pages 15 to 18 provides details of the
important events that have occurred during the period and their impact on the
financial statements.
Company Considerations
Investors should note the difference between book and accounting value.
Deferred tax assets ("DTA") can be used to offset certain taxes as applicable
in the United Kingdom. And as such, based on a continuing level of activity
the DTA are expected to be utilised resulting in the company not paying UK tax
for this year. As a result of Associated Capital Group Inc's ownership of
92.3% of shares in issue, the Company is a consolidated subsidiary for
Associated Capital Group Inc.'s financial reporting purposes. As such,
activities of the Company and of Associated Capital Group Inc. could be deemed
related parties for purposes of this disclosure. Investors should note that as
a close company with Associated Capital Group Inc. controlling greater than
90% of shares Associated Capital Group Inc. may be able to ensure the passage
of certain shareholder resolutions.
The Company is committed to delivering its investment programme for the long
term and Directors, together with management are in the process of examining
alternatives to minimise taxes, costs and expenses for its Shareholders.
Principal Risks and Uncertainties
The principal risks and uncertainties faced by the Company fall into the
following broad categories: investment portfolio; global macro events;
operational; market and share price; financial; corporate governance and
regulatory compliance; taxation; emerging and geopolitical risks. The global
macro event category includes specific market and operational risks associated
with the ongoing wars in Ukraine and Middle East and the aftermath of the
global COVID-19 pandemic, which continue to cause uncertainty and disruption
across global economies and markets. Information on each of these identified
risk areas, including mitigating actions taken by the Company, was provided on
pages 14 to 16 in the Strategic Report in the Company's Annual Report and
Accounts for the year ended 30 June 2023.
The Directors together with the Manager will continue to monitor business
continuity and resilience processes with the objective of mitigating any
potential for ongoing impact of COVID-19 and the conflicts in Ukraine and
Middle East.
Related Party Disclosure and Transactions
During the first six months of the current financial year, other than fees
payable by the Company in the ordinary course of business, there have been no
material transactions with related parties which have materially affected the
financial position or the performance of the Company.
Going Concern
The Board have closely monitored the impact of the ongoing COVID-19 pandemic,
Brexit uncertainty, and the wars in Ukraine and the Middle East. Those impacts
and related continuing uncertainty have short-and potentially medium-term
implications for the Company's investment strategy. Additionally, the Board is
monitoring the period ahead on the basis of the Company no longer having
investment trust status and its implications on the Company's investment
return profile over the longer term. In context, the Board continuously
monitors the Company's investment portfolio, liquidity and gearing, along with
levels of market activity, to appropriately minimise and mitigate
consequential risks to capital and future income such as geopolitical risks,
financial risks etc. Taking these factors into account, the Directors confirm
that they have a reasonable expectation that the Company will continue to
operate and meet its expenses as they fall due. For these reasons, the
Directors consider there is reasonable evidence to continue to adopt the going
concern basis in preparing the accounts as at 31 December 2023.
Directors' Responsibility Statement
The Directors confirm to the best of their knowledge that:
· the condensed set of financial statements contained within
the half yearly financial report has been prepared in accordance with
applicable International Accounting Standard 34 - 'Interim Financial
Reporting' (IFS) as contained in UK-adopted international accounting
standards; and
· the Interim Management Report, together with the Portfolio
Manager's Review, include a fair review of the information required by 4.2.7R
and 4.2.8R of the Disclosure Guidance and Transparency Rules.
This half yearly financial report has not been audited or reviewed by the
Company's auditors.
The half yearly financial report was approved by the Board on 28 March 2024
and the above responsibility statement was signed on its behalf by the
Co-Chairmen.
John Birch Marc Gabelli
Co-Chairman Co-Chairman
FOR AND ON BEHALF OF THE BOARD
28 March 2024
The Search For Value - Gabelli Merger Plus+ Investment Methodology
The Gabelli Investment Process
Private Market Value with a Catalyst(TM)
Process in Action
Gabelli Funds approach the global marketplace in a similar fashion; we invest
like owners. Our clients own businesses through the fractional interest of a
share. We are not index benchmarked, and construct portfolios agnostic of
market capitalisation and index weightings. We seek long- term capital
appreciation for our clients relative to inflation over the long term,
regardless of market cycles. We have invested this way since 1977.
The Gabelli Merger Plus portfolio offers access to companies that have been
identified to have substantial disconnects between market price and our
estimate of the business value (PMV), and where catalyst events exist that may
narrow these discounts for the benefit of GMP shareholders. We thus establish
a "Margin of Safety" for our investors by identifying differences between our
estimate of PMV and the stock market price. The process seeks to identify
businesses undergoing some form of strategic change, typically with strong
organic cash flow characteristics, balance sheets reorganizational
opportunities, and strategic operational flexibility accelerated with the
prospect of management capital allocation actions.
Catalyst merger events can come in many forms including, but not limited to,
corporate restructurings (such as demergers and asset sales), operational
improvements, regulatory or managerial changes, special situations (such as
liquidations), and mergers and acquisitions. Corporate mergers provide
valuable insights into corporate capital allocation decisions and therefore
help in our assessment of long-term valuations. Our proprietary research data
bases track thousands of announced deals globally and utilises that compounded
knowledge in the continued refinement of Private Market Valuations. PMV's will
change over time, and while our analysis is long term, it is through this
consistent process of bottom up stock selection and the implementation of
disciplined portfolio construction that we expect to create value for our
shareholders annually.
In this process, we do sector- by-sector analysis, assessing the PMV of a
business, and identifying the catalyst in place to realise returns. A
company's PMV is not constant, and changes as a function of many variables.
Our analysis emphasizes balance sheets, cash flows, and the long-term
defendable position of a corporation. We achieve returns through investing in
businesses utilising our proprietary Private Market Value ("PMV") with a
Catalyst™ methodology. The PMV is the value that we believe an informed
buyer would be willing to pay to acquire an entire company in a private
transaction. Our team arrives at a PMV valuation by a rigorous assessment of
fundamentals from publicly available information. Further, PMV's are enhanced
through the analysis of announced corporate mergers and acquisition activity.
Mergers offer tangible insights into the long-term capital allocation
decisions of global corporations. We focus on the balance sheet, earnings,
free cash flow, and the management, the stewards of corporates assets, of
prospective companies. The judgement gained from our comprehensive,
accumulated knowledge across a variety of sectors is deployed for investors in
a portfolio. Our analysts typically forecast model company operations 5 years
into the future. Unlike Wall Street's earnings momentum players, we do not try
to forecast earnings with accounting precision and then trade stocks based on
quarterly expectations and realities. We simply try to position ourselves in
front of long-term earnings trends. Throughout our research process, the focus
is on free cash flow: earnings before interest, taxes, depreciation and
amortization ("EBITDA") minus the capital expenditures necessary to grow the
business. We believe free cash flow is the best barometer of a business'
value. Deteriorating or rising free cash flow often foreshadows net earnings
changes. We also look at earnings per share trends. In addition, we analyse on
and off balance sheet assets and liabilities such as property, plant and
equipment, inventories, receivables, and legal, environmental and health care
issues. We want to know everything and anything that will add to, or detract
from, our valuation models. This method of analysis involves looking at
businesses as a function of their assets and earnings power. We examine
businesses as if we were owners of those businesses, and we believe that we
can do that in a rational way by looking at industries on a global basis. Our
investment professionals visit with hundreds of companies each year. Our work
is proprietary, bottom up, and involves the full utilisation of public
resources.
Our analysts follow industries on a global basis, and narrow the universe of
potential investment candidates to a short list of the most attractive
companies. All publicly available company material is reviewed, including
annual and quarterly reports, 10-Ks, 10-Qs, and proxy statements.
Each analyst develops an operational understanding of their industry,
effectively becoming an expert in that industry. The analysts hone this
expertise by continually visiting companies and their senior managements, and
by talking to competitors, suppliers and customers. They also develop and
maintain government and trade sources to derive an overall understanding of
their industry. In addition, our firm hosts a number of industry seminars,
where the top executives of the leading firms share their insights with the
investment community.
The objective of this process is to identify companies that trade at
significant differences to their intrinsic or private market values.
We continually visit the management of hundreds of companies and integrate
their input with our knowledge base. Our goal is to understand management's
motivations and expectations. Given our approach, we want to know who our
partners are and if they are working to enhance shareholder value. This
process, coupled with our financial analysis, helps us select the most
attractive investment candidates for our portfolios.
We employ a three- dimensional approach to valuation:
· Earnings per share
· Free cash flow
· Private market value
The first step is to analyse the income statement and cash flow. Cash flow is
viewed as a barometer of financial health, and often foreshadows earnings
trends. We attempt to forecast the direction and growth rates of the earnings
and cash flow streams.
The second step is to examine the balance sheet. The corporate balance sheet
is recast, assessing real- world values of inventories, property, plant and
equipment and stated book value.
To these two analytical processes, dynamic forecasting and static asset and
liability valuation, we add our assessment of the PMV of the business. In
other words, what would this company be worth to an informed business person
attempting to create or purchase a business with similar characteristics?
Catalyst: Identification of a mispriced situation, however, does not
necessarily guarantee a rewarding investment. The next step is to determine
events in businesses undergoing some form of strategic change that will help
narrow the spread between a stock's public market price and our determination
of its PMV. We call these events catalysts. Catalysts include industry events
such as consolidation, changes in the regulatory or accounting environment,
new technologies, or be indigenous to the company itself such as financial
engineering, demergers, acquisitions or sales.
Manager History
The Gabelli organisation, of which Gabelli Funds, LLC is an affiliate, began
in the U.S. in 1976 as an institutional value investing research firm. Mario
Gabelli, the firm's founder, is credited by the academic community for
establishing the notion of Private Market Value ("PMV"), the value an informed
industrialist would pay for an entire business in a negotiated transaction.
This is a long-term oriented bottom- up investment process based on the
fundamental investment principles first articulated in 1934 by Graham and
Dodd, the founders of modern security analysis, and further augmented by Mario
Gabelli in 1977 with his introduction of the concepts of PMV into equity
analysis. Gabelli has added the element of a catalyst event to generate
long-term returns. The Gabelli method, PMV with a Catalyst(TM), is part of the
Value Investing Curriculum at many major business schools and is thus applied
in the analysis of public equity securities by Gabelli Funds for shareholders.
Results: After we have identified and selected stocks that qualify as
candidates based on these fundamental and conceptual considerations, our
objective is to structure a diversified portfolio. This has been a proven
long-term method for creating wealth, risk adjusted, in the stock market.
Merger investing
Merger arbitrage is a highly specialised component of a portfolio. The
investment approach is designed principally to profit from corporate events,
including the successful completion of proposed mergers, acquisitions,
takeovers, tender offers, leveraged buyouts, restructurings, demergers, and
other types of corporate reorganisations and other actions. As arbitrageurs,
we seek to earn the differential, or "spread," between the market price of our
investments and the value ultimately realised through deal consummation.
Portfolio Manager's review
Gabelli catalyst event merger arbitrage offers investors broad and flexible
investment authority
· PMV with a Catalyst selection across all sectors and
capitalizations
· Full use of Gabelli organization resources: proprietary
research, portfolio management, risk control and trading
· Fundamental research-driven investment process
· Opportunities to maximize returns regardless of market
direction
· Minimize overall market correlation
Methodology and Market Opportunity
In this context, let us outline the investment landscape during the second
half of the financial year to 31 December 2023 and the environment ahead. We
are especially enthusiastic about the opportunities to grow client wealth in
the decades to come, and we highlight below several factors that should help
drive results. These include:
● Increased market volatility, which enhances our ability to
establish positions for the prospect of improved returns
· A robust market for corporate deal making as conditions
continue to provide an accommodative market for mergers and acquisitions
· An elevated interest rate environment, providing attractive
merger spread opportunities
· The Fund's experienced investment team, which pursues
opportunities globally through the disciplined application of Gabelli's
investment methodology
Global Deal Activity(1)
Global deal merger and acquisition activity ("M&A") totalled $2.9 trillion
during 2023, a year-over-year decrease of 17%. The total number of deals
worldwide decreased only 6% compared to 2022. Mega deals - those greater than
$10 billion - totalled $647 billion, while deals with value under $500 million
accounted for $793 billion during the year, down 13% and 26% year over year,
respectively.
1 Thomson Reuters M&A Review - Full Year 2023
Cross border M&A activity totalled $954 billion for the calendar year, a
decrease of 12% year over year. Private equity deals decreased 30% year over
year; however, these buyouts still accounted for 20% of total deal activity.
Deals involving United States-based targets declined only 5% in 2023 and
accounted for 47% of global deal activity. European M&A tallied $598
billion of transactions over the same period, a decrease of 28%. Asia Pacific
targets totalled $602 billion in 2022, a 26% decrease year over year.
The Energy and Power sector was the biggest contributor to merger activity
during the year, totalling $502 billion, accounting for a record 17% of total
announced deal volume.
Industrials, Technology, and Healthcare sectors were also large contributors,
each accounting for 13% of M&A activity.
Portfolio in Review
Risk assets experienced a bounce back year in 2023, supported by a resilient
economy, better than anticipated corporate earnings, and expectations that the
Federal Reserve is finished raising rates. The S&P 500 and investment
grade bonds were up 26% and 6%, respectively. As we have noted in the past,
our merger arbitrage portfolios earn returns from taking asymmetrical deal
risk and not market risk. 2023 was another year of generating positive,
absolute returns for our clients.
Driven by a weak first half of the year, global M&A volumes were down 17%
in 2023; however, the US remained the lone bright spot in M&A. With $1.4
trillion in announced M&A, US targets saw a volume decline of only 5% on
the year with number of deals only decreasing 4% year over year. Furthermore,
the US accounted for nearly 47% of worldwide volumes. Volumes trended upwards
as the year progressed, and the fourth quarter saw an increase of nearly 30%
compared to the third quarter and 10% year-over-year.
As we look ahead to 2024, we anticipate robust M&A markets. We expect the
recent headwinds in M&A will reverse as clarity and confidence return to
the boardroom. Financing markets have stabilized as anticipated Fed actions
indicate a likely top in rates. A better understanding of changing global
regulatory regimes should create a more efficient framework for tackling
onerous regulatory hurdles. Lastly, sellers' expectations should be
recalibrated to the "new normal" in asset valuations now that we are a full
year removed from equity volatility of 2022, which should lead to more
transactions.
The spread environment continues to remain attractive, supported by (1)
interest rates and (2) perceived regulatory risks in M&A transactions. As
the risk free rate is one of the components of a deal spread, higher rates for
longer should result in higher nominal spreads, all things being equal. With
the 3-month Treasury bill yielding over 5%, this should continue to create a
more compelling spread environment going forward. Regarding regulatory risk,
the aggressive policies of regulators in the US and abroad have created some
volatility; however, several large transactions were able to close despite
regulatory action (Activision, Horizon Therapeutics and Black Knight). We feel
as though this regulatory environment has created unique investment
opportunities and an attractive risk/reward.
We continue to find attractive investment opportunities in newly announced and
pipeline deals. We remain focused on investing in highly strategic,
well-financed deals with an added focus on near-term catalysts, and are upbeat
about our prospect to generate absolute returns in 2024.
Notable contributors to performance include:
Gaming and Entertainment
Activision Blizzard, Inc. (ATVI-NYSE), which develops and publishes
interactive entertainment and gaming content, received formal approval from
the UK CMA on 13 October, and the deal was completed later that day.
Shareholders received $95 cash per share, bringing an end to Microsoft's 636
day pursuit of Activision. The UK CMA ultimately concluded that Microsoft's
revised deal structure for its $70 billion acquisition of Activision that
included selling cloud gaming rights to Ubisoft, likely addressed its
concerns.
Biotech Pharma
Cerevel Therapeutics Holdings, Inc. (CERE-NASDAQ) agreed to be acquired by
AbbVie, Inc. (ABBV-NYSE). Cerevel Therapeutics is a biopharmaceutical company
focused on developing innovative therapies for neurological disorders, with a
particular emphasis on neuroscience research and drug discovery. Under terms
of the agreement, Cerevel Therapeutics shareholders will receive $45.00 cash
per share, valuing the transaction at approximately $8.7 billion. The
transaction is subject to shareholder, as well as regulatory approvals and is
expected to close in the middle of 2024.
ImmunoGen, Inc. (IMGNNASDAQ) agreed to be acquired by AbbVie, Inc.
(ABBV-NYSE). ImmunoGen is a biotechnology company that focuses on the
development and commercialization of antibody-drug conjugates for cancer
patients. Under terms of the agreement, ImmunoGen shareholders will receive
$31.26 cash per share, valuing the transaction at approximately $7.8 billion.
The transaction is subject to shareholder, as well as regulatory approvals and
is expected to lose in the second quarter of 2024.
Cloud Computing and Data
VMware (VMW-NYSE), which provides virtualization software that powers networks
and the cloud, received Chinese regulatory approval (SAMR) to be acquired by
Broadcom. SAMR was the final regulatory hurdle, and Broadcom completed its $70
billion acquisition on 22 November. The transaction had previously received
antitrust approval in the US, UK, and EC. Under terms of the transaction,
VMware shareholders could elect to receive $142.50 cash per share or 0.252
shares of Broadcom, subject to total consideration of 50% cash and 50% stock.
Shares of Broadcom appreciated materially over the life of the deal, making
the stock election more valuable, and the beneficial prorate provided an
additional 1% gross return for the spread.
Splunk Systems (SPLK-$152.35-NASDAQ) agreed to be acquired by Cisco Systems,
Inc. (CSCO-NASDAQ). Splunk develops and markets cloud services and licensed
software solutions in the U.S. and abroad. Under terms of the agreement,
Splunk shareholders will receive $157.00 cash per share, valuing the
transaction at approximately $28 billion. The transaction is subject to
shareholder, as well as regulatory approvals and is expected to close in the
third quarter of 2024.
Food Distribution
Albertsons Companies, Inc. (ACI-NYSE) agreed to be acquired by The Kroger Co.
(KR-NYSE). Albertsons operates food and drug retail stores in the U.S. under
banners such as Albertsons, Safeway, Vons, Tom Thumb, ACME and more. Under
terms of the agreement Albertsons' shareholders will receive $34.10 cash per
share (inclusive of a special dividend and potential spinoff), valuing the
transaction at approximately $25 billion. The transaction is subject to
shareholder, as well as regulatory approvals and is expected to close in 2024.
Home Healthcare Services
Amedisys, Inc. (AMED-$91.44-NASDAQ) agreed to be acquired by UnitedHealth
Group Incorporated (UNH- $480.64-NYSE). Amedisys provides home health,
hospice, personal care, and high acuity care services in the U.S. Under terms
of the agreement Amedisys shareholders will receive $101.00 cash per share,
valuing the transaction at approximately $3.7 billion. Amedisys previously
agreed in May to be acquired by Option Care Health, Inc. (OPCH-$32.49-NASDAQ)
for 3.0213 shares of Option Care Health common stock per share, valuing the
transaction at approximately $3.5 billion. The proposal is under review, and
we continue to monitor the situation.
Fashion
Capri Holdings Ltd. (CPRI-$52.49-NYSE) agreed to be acquired by Tapestry, Inc.
(TPR-$33.32-NYSE). Capri designs, markets, distributes, and retails women's
and men's apparel under the Versace, Jimmy Choo, and Michael Kors brand names.
Under terms of the agreement Capri shareholders will receive $57.00 cash per
share, valuing the transaction at approximately $10 billion. The transaction
is subject to shareholder, as well as regulatory approvals and is expected to
close in the fourth quarter of 2024.
Energy and Exploration
Hess Corp. (HES-NYSE) agreed to be acquired by Chevron Corp. (CVX-NYSE). Hess
is an energy company that explores, produces, transports, and sells crude oil,
natural gas liquids, and natural gas. Under terms of the agreement, Hess
shareholders will receive 1.025 shares of Chevron Corp. common stock per
share, valuing the transaction at approximately $52.4 billion. The transaction
is subject to shareholder, as well as regulatory approvals and is expected to
close in the first half of 2024.
Pioneer National Resources Co. (PXD-NYSE) agreed to be acquired by Exxon Mobil
Corp. (XOM-NYSE). Pioneer is an independent oil and gas exploration and
production company in the U.S. Under terms of the agreement, Pioneer
shareholders will receive 2.3234 shares of Exxon Mobil common stock per share,
valuing the transaction at approximately $68.0 billion. The transaction is
subject to shareholder, as well as regulatory approvals and is expected to
close in the first half of 2024.
Manufacturing
United States Steel Corp. (X-NYSE) agreed to be acquired by Nippon Steel Corp.
(5401 JP-Tokyo). U.S. Steel is a major American integrated steel producer,
operating across the entire steel production process from raw materials to
finished goods. Under terms of the agreement, U.S. Steel shareholders will
receive $55.00 cash per share, valuing the transaction at approximately $14.1
billion. The transaction is subject to shareholder, as well as regulatory
approvals and is expected to close in the third quarter of 2024.
Invest Like Owners Corporate Mergers Provide Valuable Insights
Fundamental and Active Complement to Long Term Value Investing
Capital Allocation Rigorous Analysis Dynamic Management
Ideas sourced from proprietary database of Gabelli PMV with Catalyst original Focus on strategic, cash transactions with financing secured Real time monitoring of spreads/positions
research coupled with rigorous analysis of valuations provided as corporations
allocate capital through announced corporate events and M&A transactions Understand all downside risks including its fundamental basis Extensive proprietary database
worldwide
Focus on legal and governance, MAC clauses, financing conditions, Actively traded as the event progresses and according to closing
shareholders' votes
Positions are increased gradually as transaction hurdles are passed
Analyse all deal issues such as antitrust/regulatory items
Gabelli "PMV with a Catalyst"(TM) One Process Globally
· Targeted strategy to achieve superior total returns, non
correlated to the broad market
· Preservation and growth of investor capital
· Provides diversification to traditional equity and fixed income
portfolios
Financial Statements
Statement of comprehensive income
(Unaudited) (Unaudited) (Audited)
Half year ended 31 December 2023 Half year ended 31 December 2022 Year ended 30 June 2023
Income Note Revenue Capital Total Revenue Capital Total Revenue Capital Total
$000 $000 $000 $000 $000 $000 $000 $000 $000
Investment income 5 966 - 966 487 - 487 1,012 - 1,012
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total investment income 966 - 966 487 - 487 1,012 - 1,012
========= ========= ========= ========= ========= ========= ========= ========= =========
Gains on investments
Net realised and unrealised gains on investments 3, 12 - 2,870 2,870 - 4,826 4,826 - 4,707 4,707
Net realised and unrealised currency gains on investments - 31 31 - 208 208 - 114 114
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Net gains on investments - 2,901 2,901 - 5,034 5,034 - 4,821 4,821
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total income and gains on investments 966 2,901 3,867 487 5,034 5,521 1,012 4,821 5,833
========= ========= ========= ========= ========= ========= ========= ========= =========
Expenses
Portfolio management fee 6 (287) - (287) (369) - (369) (654) - (654)
Performance fee 6, 13 - - - - (963) (963) - - -
Other expenses 6 (331) (320) (651) (697) (111) (808) (807) (501) (1,308)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Total expenses (618) (320) (938) (1,066) (1,074) (2,140) (1,461) (501) (1,962)
========= ========= ========= ========= ========= ========= ========= ========= =========
Net return on ordinary activities before finance costs and taxation 348 2,581 2,929 (579) 3,960 3,381 (449) 4,320 3,871
Interest expense and similar charges (11) - (11) - - - (26) - (26)
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Profit before taxation 337 2,581 2,918 (579) 3,960 3,381 (475) 4,320 3,845
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
Taxation on ordinary activities 8 (698) - (698) 1,580 - 1,580 3,471 - 3,471
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
(Loss)/profit for the period (361) 2,581 2,220 1,001 3,960 4,961 2,996 4,320 7,316
--------------- --------------- --------------- --------------- --------------- --------------- --------------- --------------- ---------------
(Loss)/earnings per share (basic and diluted) 9 ($0.05) $0.38 $0.32 $0.11 $0.45 $0.57 $0.39 $0.55 $0.94
========= ========= ========= ========= ========= ========= ========= ========= =========
The total column of this statement represents the Statement of Comprehensive
Income prepared in accordance with UK International Accounting Standards (UK
IAS). The supplementary revenue return and capital return columns are both
prepared under guidance issued by the Association of Investment Companies. All
items in the above statement derive from continuing operations.
No operations were acquired or discontinued during the period ended 31
December 2023.
The Company does not have any income or expense that is not included in net
profit for the year. Accordingly, the net profit for the period is also the
total comprehensive income for the year, as defined in UK IAS.
The notes on pages 26 to 54 form part of these financial statements.
Statement of changes in equity for the period ended 31 December 2023
Half year ended 31 December 2023 (Unaudited)
(Unaudited)
Half year ended 31 December 2023
Note Called up Special Capital Revenue Total
Share Capital Distributable Reserve Reserve* $000
$000 Reserve* $000 $000
$000
Balance as at 1 July 2023 103 45,995 25,285 (1,360) 70,023
Profit/(loss) for the period after tax on ordinary activities - - 2,581 (361) 2,220
Dividends paid 7 - (822) - - (822)
--------------- --------------- --------------- --------------- ---------------
Balance as at 31 December 2023 103 45,173 27,866 (1,721) 71,421
========= ========= ========= ========= =========
Half year ended 31 December 2022 (Unaudited)
(Unaudited)
Half year ended 31 December 2022
Note Note Called up Special Capital Revenue Total
Share Capital Distributable Reserve Reserve* $000
$000 Reserve* $000 $000
$000
Balance as at 1 July 2022 103 79,062 20,965 (4,356) 95,774
Ordinary shares bought back into treasury - - (29,001) - (29,001)
Profit for the period after tax on ordinary activities - - 3,960 1,001 4,961
--------------- --------------- --------------- --------------- ---------------
Balance as at 31 December 2022 103 79,062 (4,076) (3,355) 71,734
========= ========= ========= ========= =========
Year ended 30 June 2023 (Audited)
(Audited)
Year ended 30 June 2023
Note Called up Special Capital Revenue Total
Share Capital Distributable Reserve Reserve* $000
$000 Reserve* $000 $000
$000
Balance as at 1 July 2022 103 79,062 20,965 (4,356) 95,774
Ordinary shares bought back into treasury - (32,245) - - (32,245)
Profit for the period after tax on ordinary activities - - 4,320 2,996 7,316
Dividends paid 7 - (822) - - (822)
--------------- --------------- --------------- --------------- ---------------
Balance as at 30 June 2023 103 45,995 25,285 (1,360) 70,023
========= ========= ========= ========= =========
* The Revenue Reserve and Special Distributable Reserve are
distributable. The amount of the Revenue Reserve and Special Distributable
Reserve that is distributable is not necessarily the full amount of the
reserves as disclosed within these financial statements. As at 31 December
2023, the net amount of reserves that are distributable are $43,452,000 (31
December 2022: $75,707,000, 30 June 2023: $44,635,000).
The notes on pages 26 to 54 form part of these financial statements.
Statement of financial position
(Unaudited) (Unaudited) (Audited)
As at 31 December 2023 As at 31 December 2022 As at 30 June 2023
Note $000 $000 $000 $000 $000 $000
Non-current assets
Investments held at fair value through profit or loss 3 63,892 56,938 56,514
Current assets
Cash and cash equivalents 10 5,901 14,727 9,555
Receivable for investment sold 77 447 1,800
Other receivables 14 77 157 73
Deferred tax asset 8 2,870 2,354 3,530
--------------- --------------- --------------- --------------- --------------- ---------------
8,925 17,685 14,958
Current liabilities
Portfolio management fee payable (49) (52) (46)
Performance fee payable - (963) -
Payable for investment purchased (643) (268) (571)
Taxes payable - (741) -
Other payables 14 (338) (455) (349)
Bank overdrafts (36) (162) (106)
--------------- --------------- --------------- --------------- --------------- ---------------
Net current assets 7,859 15,045 13,886
========= ========= =========
Non-current liabilities
Investments at fair value through profit or loss 3 (278) (197) (325)
Offering fees payable (52) (52) (52)
--------------- --------------- ---------------
Net assets 71,421 71,734 70,023
========= ========= =========
Share capital and reserves
Called-up share capital 11 103 103 103
Special distributable reserve(1) 45,173 79,062 45,995
Capital reserve 27,866 (4,076) 25,285
Revenue reserve(1) (1,721) (3,355) (1,360)
--------------- --------------- --------------- --------------- --------------- ---------------
Total shareholders' funds 71,421 71,734 70,023
Net asset value per ordinary share $10.43 $9.99 $10.22
========= ========= =========
1 The Revenue Reserve and Special Distributable Reserve are
distributable. The amount of the Revenue Reserve and Special Distributable
Reserve that is distributable is not necessarily the full amount of the
reserves as disclosed within these financial statements. As at 31 December
2023, the net amount of reserves that are distributable are $43,452,000 (31
December 2022: $74,093,000, 30 June 2023: $44,635,000).
Gabelli Merger Plus+ Trust Plc is registered in England and Wales under
Company number 10747219.
The notes on pages 26 to 54 form part of these financial statements.
The financial statements on pages 20 to 25 were approved by the Board of
Directors on 28 March 2024 and signed on its behalf by:
JOHN BIRCH MARC GABELLI
Co-Chairman Co-Chairman
Notes to the financial statements
1 Condensed financial statements
The half yearly report has not been audited by the Company's auditors.
2 Accounting policies
(a) Basis of preparation - The financial statements of Gabelli Merger Plus+
Trust Plc have been prepared in accordance with the UK adopted International
Financial Reporting Standards (IFRS) as issued by the International Accounting
Standards Board (IASB). The financial statements have been prepared under the
historical cost convention, as modified by the revaluation of financial assets
and financial liabilities (including derivative financial instruments) at fair
value through profit or loss.
The principal accounting policies adopted by the Company are set out below.
Where presentational guidance set out in the Statement of Recommended Practice
('SORP') for investment trusts issued by the Association of Investment
Companies ('AIC') in October 2019 is consistent with the requirements of IFRS,
the Directors have sought to prepare the financial statements on a basis
compliant with the recommendations of the SORP.
For the accounting period ended 30 June 2022, the Company met the requirements
to be an investment trust under sections 1158 and 1159 of the Corporation Tax
Act of 2010. However, as a result of the Tranche One Tender Offer completed in
the third quarter of 2022, the Company subsequently became a close company due
to becoming controlled by a single participator, Associated Capital Group,
Inc.
Although no longer an Investment Trust, the Company has elected to continue to
prepare the financial statements on a basis compliant with the recommendations
of the SORP. The SORP is issued by the AIC and it sets out recommendations,
intended to represent current best practice, on the form and contents of the
financial statements of Investment Companies. Investment Companies include
investment trust companies that have been, currently are, or are directing its
affairs so as to enable it to obtain or retain approval under Section 1158 of
the Corporation Tax Act 2010. Although the Company no longer meets the
requirements of Section 1158 of the Corporation Tax Act 2010 to be an
investment trust, it continues to conduct its affairs as an investment
company. Further, management of the Company also believes that consistency in
presentation will be beneficial to individuals reviewing the Company's
financial statements.
(b) Presentation of Statement of Comprehensive Income - To better reflect the
activities of an investment trust company and in accordance with guidance
issued by the AIC, supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature has been
presented alongside the Statement of Comprehensive Income.
(c) Going concern - The Directors, have taken account of the continuing market
regulatory changes affecting investee companies, investment valuations and the
war in Ukraine. Those impacts and related continuing uncertainty have short-
and potentially medium-term implications for the Company's investment
strategy. Additionally, the Board is monitoring the period ahead on the basis
of the Company no longer having investment trust status and its implications
on the Company's investment return profile over the longer term. In context,
the Board continuously monitors the Company's investment portfolio, liquidity,
and gearing, along with levels of market activity, to appropriately minimise
and mitigate consequential risks to capital and future income such as
geopolitical risks and financial risks. Taking these factors into account, the
Directors confirm that they have a reasonable expectation that the Company
will continue to operate and meet its expenses as they fall due. For these
reasons, the Directors consider there is reasonable evidence to continue to
adopt the going concern basis in preparing the accounts as at 31 December
2023.
In forming this position, the Directors consulted with shareholders utilizing
the tender offer process, considered the Company's investment objectives, risk
management policies, capital management policies and procedures, the nature of
the portfolio and expenditure projections in detail.
(d) Statement of estimation uncertainty - In the application of the Company's
accounting policies, the Investment Manager is required to make judgements,
estimates, and assumptions about carrying values of assets and liabilities
that are not always readily apparent from other sources. The estimates and
associated assumptions are based on historical experience and other factors
that are considered to be relevant. Actual results may vary from these
estimates. There have been no significant judgements, estimates, or
assumptions for the period.
(e) Income recognition - Revenue from investments (other than special
dividends), including taxes deducted at source, is included in revenue by
reference to the date on which the investment is quoted ex-dividend, or where
no ex-dividend date is quoted, when the Company's right to receive payment is
established. Franked investment income is stated net of the relevant tax
credit. Other income includes any taxes deducted at source.
Special dividends are credited to capital or revenue, according to the
circumstances. Scrip dividends are treated as unfranked investment income; any
excess in value of the shares received over the amount of the cash dividend is
recognised as a capital item in the Statement of Comprehensive Income.
Interest income is accounted for on an accrual basis by reference to the
principal outstanding and at the effective interest rate applicable, which is
the rate that exactly discounts estimated future cash receipts through the
expected life of the financial asset to that asset's net carrying amount.
(f) Expenses - The management fees are allocated to revenue in the Statement
of Comprehensive Income. Interest receivable and payable and management
expenses are treated on an accruals basis. Other expenses are charged to
revenue except where they directly relate to the acquisition or disposal of an
investment, in which case, they are added to the cost of the investment or
deducted from the sale proceeds. Starting with the year ended 30 June 2023,
transaction and finance charges related to contracts for difference are
charged to capital.
The formation and initial expenses of the Company are allocated to capital.
(g) Investments - Investments have been designated upon initial recognition at
fair value through profit or loss. Investments are recognised and
de-recognised at trade date where a purchase or sale is under a contract whose
terms require delivery within the time frame established by the market
concerned, and are initially measured at fair value. Subsequent to initial
recognition, investments are valued at fair value. U.S. Treasuries held for
investment diversification purposes are not included as cash equivalents and
are valued at their amortised cost. Movements in the fair value of investments
and gains/losses on the sale of investments are taken to the Statement of
Comprehensive Income as capital items.
The Company's investments are classified as held at fair value through profit
or loss in accordance with applicable International Financial Standards.
Financial assets and financial liabilities are recognised in the Statement of
Financial Position when the Company becomes a party to the contractual
provisions of the instrument. The Company shall offset financial assets and
financial liabilities if it has a legally enforceable right to set off the
recognised amounts and interests and intends to settle on a net basis.
Financial assets and liabilities are derecognised when the Company settles its
obligations relating to the instrument.
Contracts for Difference (CFDs)
CFDs are recognised in the Statement of Financial Position at the accumulated
unrealised gain or loss as an asset or liability, respectively. This
represents the difference between the nominal book cost and market value of
each position held. Movements in the unrealised gains/losses are taken to the
Statement of Comprehensive Income as capital items.
(h) Cash and cash equivalents - The Company may invest part of its net assets
in cash and cash equivalents, money market instruments, bonds, commercial
papers or other debt obligations with banks or other counterparties, having at
least a single-A (or equivalent) credit rating from an internationally
recognised rating agency or government and other public securities, if the
Portfolio Manager believes that it would be in the best interests of the
Company and its shareholders. This may be the case, for example, where the
Portfolio Manager believes that adverse market conditions justify a temporary
defensive position. Any cash or surplus assets may also be temporarily
invested in such instruments pending investment in accordance with the
Company's investment policy. Cash balances are marked to market based on the
prevailing exchange rate as of the valuation date. U.S. Treasuries are valued
at their amortised cost.
(i) Transaction costs - Transaction costs incurred on the purchase and
disposal of investments are recognised as a capital item in the Statement of
Comprehensive Income.
(j) Foreign currency - Foreign currencies are translated at the rates of
exchange ruling on the period end date. Revenue received/receivable and
expenses paid/payable in foreign currencies are translated at the rates of
exchange ruling at the transaction date.
(k) Fair value - All financial assets and liabilities are recognised in the
financial statements at fair value.
(l) Dividends payable - Interim and final dividends are recognised in the
period in which they are declared.
(m) Capital reserve - Capital distributions received, realised gains or losses
on investments that are readily convertible to cash, and capital expenses are
transferred to the capital reserve. Share buybacks are funded through the
capital reserve.
(n) Taxation - The tax effect of different items of income/gains and
expenditure/losses is allocated between revenue and capital on the same basis
as the particular item to which it relates, under the marginal method, using
the Company's effective rate of tax. Deferred taxation is recognised in
respect of all timing differences that have originated but not reversed at the
period end date where transactions of events that result in an obligation to
pay more or a right to pay less tax in future have occurred at the period end
date measured on an undiscounted basis and based on enacted tax rates. This is
subject to deferred tax assets only being recognised if it is considered more
likely than not that there will be suitable profits from which the future
reversal of the underlying timing differences can be deducted. Timing
differences are differences arising between the Company's taxable profits and
its results as stated in the accounts which are capable of reversal in one or
more subsequent periods.
GMP has historically been authorized as an Investment Trust under Sections
1158 and 1159 Corporation Tax Act 2010 and the Investment Trust (Approved
Company) (Tax) Regulations 2011 (S.I.2011/2999).
Following a share buy-back offer from 19 August 2022 to 22 September 2022, GMP
became a close company due to becoming controlled by a single participator,
Associated Capital Group Inc. This constituted a "serious" breach of the
Investment Trust rules.
Accordingly, GMP notified HMRC of this development in December 2022 and
requested confirmation that GMP's authorization as an Investment Trust should
be withdrawn from the commencement of the current accounting period (being 1
July 2022).
The primary benefit associated with the Investment Trust regime is that
capital gains realized by a qualifying Investment Trust company is exempt from
UK Corporation Tax. Therefore, loss of Investment Trust status for a UK
company can have potentially significant consequences for its tax profile
moving forwards, as it would be subject to tax on any capital gains realized
thereafter at the main rate of UK Corporation Tax.
At 31 December 2023, after offset against income taxable on receipt, there was
a deferred tax asset ("DTA") of $2.87 million (31 December 2022: $2.35
million, 30 June 2023: $3.53 million) in relation to surplus tax reliefs.
After the loss of its Investment Trust Status it is now possible for GMP to
utilise this DTA in order to shelter capital gains from UK Corporation Tax. In
order for the DTA to remain available, GMP must maintain its investment
business moving forwards. GMP's activities are such that it will have an
investment business for UK tax purposes. In particular, the Investment Trust
rules require that "substantially all of the business of the Investment Trust
company consists of investing its funds in shares, land or other assets with
the aim of spreading investment risk and giving members of the company the
benefit of the results of the management of its funds". This may be considered
analogous to having an investment business. Therefore, given (i) GMP
previously received approval from HMRC that this requirement was met, and (ii)
the activity of the company is not intended to change, GMP will continue
having an investment business and will meet the conditions to carry forward
and use its excess management expenses in current and future periods. As such
GMP has included the DTA in the financial statements.
(o) Functional and presentation currency - The functional and presentation
currency of the Company is the U.S. dollar.
3 Investments at fair value through profit or loss
The financial assets measured at fair value through profit or loss in the
financial statements are grouped into the fair value hierarchy as follows:
As at 31 December 2023 (Unaudited)
Level 1 Level 2 Level 3 Total
$000 $000 $000 $000
Financial assets at fair value through profit or loss
Quoted equities 36,716 - 823 37,539
Contingent value rights - - 372 372
Derivatives - 115 - 115
U.S. Treasuries - 25,866 - 25,866
--------------- --------------- --------------- ---------------
Gross fair value 63,892
Derivatives - (278) - (278)
--------------- --------------- --------------- ---------------
Net fair value 36,716 25,703 1,195 63,614
========= ========= ========= =========
As at 31 December 2022 (Unaudited)
Level 1 Level 2 Level 3 Total
$000 $000 $000 $000
Financial assets at fair value through profit or loss
Quoted equities 55,291 1,287 4 56,582
Contingent value rights - 210 - 210
Derivatives - 146 - 146
--------------- --------------- --------------- ---------------
Gross fair value 56,938
Derivatives - (197) - (197)
--------------- --------------- --------------- ---------------
Net fair value 55,291 1,446 4 56,741
========= ========= ========= =========
As at 30 June 2023 (Audited)
Level 1 Level 2 Level 3 Total
$000 $000 $000 $000
Financial assets at fair value through profit or loss
Quoted equities 55,219 903 - 56,122
Contingent value rights - 257 - 257
Derivatives - 135 - 135
--------------- --------------- --------------- ---------------
Gross fair value 56,514
Derivatives - (325) - (325)
--------------- --------------- --------------- ---------------
Net fair value 55,219 970 - 56,189
========= ========= ========= =========
There were no transfers between levels for all periods presented.
Fair value hierarchy
IFRS 13 requires the Company to classify its financial instruments held at
fair value using a hierarchy that reflects the significance of the inputs used
in the valuation methodologies.
These are as follows:
· Level 1 - quoted prices in active markets for identical
investments;
· Level 2 - other significant observable inputs (including
quoted prices for similar investments, interest rates, prepayments, credit
risk, etc.); and
· Level 3 - significant unobservable inputs.
Analysis of changes in market value and book cost of portfolio investments in
period
(Unaudited) (Unaudited) (Audited)
As at As at As at
31 December 2023* 31 December 2022 30 June 2023
$000 $000 $000
Opening book cost 63,218 99,687 99,687
Opening investment holding losses (7,029) (7,722) (7,722)
--------------- --------------- ---------------
Opening market value 56,189 91,965 91,965
========= ========= =========
Additions at cost 117,027 71,500 139,266
Disposals proceeds received (112,472) (111,550) (179,749)
Gains on investments 2,870 4,826 4,707
--------------- --------------- ---------------
Market value of investments 63,614 56,741 56,189
========= ========= =========
Closing book cost 69,493 63,829 63,218
Closing investment holding losses (5,879) (7,088) (7,029)
--------------- --------------- ---------------
Closing market value 63,614 56,741 56,189
========= ========= =========
* Figures for the period ended 31 December 2023 include U.S.
Treasuries purchased for investment diversification purposes.
The company received $112,472,000 (31 December 2022: $111,550,000, 30 June
2023: $179,749,000) from investments sold in the period. The book cost of
these investments when they were purchased was $110,752,000 (31 December 2022:
$107,358,000, 30 June 2023: $175,735,000).
Net realised and unrealised gains/(losses) on investments
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Realised gains on investments 1,720 4,192 4,014
Movement in unrealised gains on investments 1,150 634 693
--------------- --------------- ---------------
Net realised and unrealised gains on investments 2,870 4,826 4,707
========= ========= =========
4 Transaction costs
During the period commissions and other expenses were incurred in acquiring or
disposing of investments classified at fair value through profit or loss.
These have been charged through capital and are within gains/(losses) in the
Statement of Comprehensive Income. The total costs were as follows:
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Purchases 27 24 54
Sales 15 25 34
--------------- --------------- ---------------
Total 42 49 88
========= ========= =========
5 Income from investments
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Dividend income 280 227 423
Income on short-term investments(1) 597 108 387
Other income 89 152 202
--------------- --------------- ---------------
Total income 966 487 1,012
========= ========= =========
1 Income on short-term investments represents the return on cash and
cash equivalents, primarily U.S. Treasury Bills. Further information can be
found in Note 10 on page 39.
6 Expenses
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Revenue expenses
Portfolio Management Fee (287) (369) (654)
Directors' Remuneration (79) (79) (157)
Audit Fees - PwC (50) (100) (145)
Company Secretary Fees (50) (76) (100)
Legal Fees (25) (76) (122)
Former AIFM - Carne - (27) (51)
AIFM Support Services (24) - -
Administration Fees - State Street (23) (23) (55)
Custodian/Depositary Fees - State Street (23) (28) (52)
Other (20) (56) (34)
Printing (8) (19) (28)
Registrar - Computershare (7) (8) (18)
Regulatory Filing Fees - AIFMD (7) (7) (14)
LSE RNS fees (6) (8) (10)
Ongoing LSE and UKLA Fees (5) (3) (10)
Directors' Expenses (4) (10) (11)
Contracts for Difference(1) - (177) -
--------------- --------------- ---------------
Total revenue expenses (618) (1,066) (1,461)
========= ========= =========
1 Beginning with the year ended 30 June 2023 expenses related to
Contracts for Difference are treated as capital expenses. In prior years these
expenses were treated as revenue expenses.
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Capital expenses
Contracts for Difference(1) (261) - (317)
Transaction Charges - State Street (32) (55) (92)
Transaction costs on derivatives (27) (56) (92)
Performance Fee - (963) -
--------------- --------------- ---------------
Total capital expenses (320) (1,074) (501)
========= ========= =========
1 Beginning with the year ended 30 June 2023 expenses related to
Contracts for Difference are treated as capital expenses. In prior years these
expenses were treated as revenue expenses.
Portfolio Management Fee
Under the terms of the Portfolio Management Agreement, the Portfolio Manager
will be entitled to a management fee ("Management Fee"), together with
reimbursement of reasonable expenses incurred by it in the performance of its
duties under the Portfolio Management Agreement, other than the salaries of
its employees and general overhead expenses attributable to the provision of
the services under the Portfolio Management Agreement. The Management Fee
shall be accrued daily and calculated on each Business Day at a rate
equivalent to 0.85% of NAV per annum.
AIFM Fees
The Company previously appointed Carne Global Fund Managers (Ireland) Limited
("Carne") as its Alternative Investment Fund Manager pursuant to the AIFMD.
Carne is entitled to receive from the Company such annual fees, accrued and
payable monthly and subject to a minimum monthly fee of €2,500. The Company
appointed Gabelli Funds, LLC to serve as AIFM effective 14 February 2023.
Gabelli Funds, LLC does not earn a fee for its role as AIFM; it earned
$287,299 in portfolio management fees during the period ended 31 December 2023
(31 December 2022: $368,896, 30 June 2023: $653,934). For the half year ended
31 December 2023 Carne provided certain support services to the AIFM such as
due diligence and reporting for which it earned fees of $24,198.
7 Equity Dividends
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Dividends paid 822 - 822
========= ========= =========
During the period ended 31 December 2023 dividends paid per share totalled
$0.12 (31 December 2022: nil, 30 June 2023: $0.12 per share).
8 Taxation on ordinary activities
Deferred Tax Assets
At 30 June 2023 total recognised deferred tax assets were $3,530,045. During
the half year period ended 31 December 2023 the Company incurred deferred tax
expense of $659,791 reflecting partial utilisation of the deferred tax asset,
resulting in a deferred tax asset of $2,870,254 or $0.42 per Ordinary Share.
The deferred tax asset was comprised of $1,429,147 related to unrealised
losses on the value of the investment portfolio and excess expenses of
$5,764,428 carried forward. This sum, which is net of the amount set against
current period taxable income, arose due to the cumulative deductible expenses
having exceeded taxable income over the life of the Company. Now that the
Company is no longer an investment trust for tax purposes and is therefore
subject to UK capital gains tax, the Company believes it is more likely than
not that it will have sufficient taxable profits against which these expenses
can be offset. Provided the Company continues to maintain its current
investment profile, it is likely that this deferred tax asset will be utilised
to offset future taxable income subject to the normal corporate tax loss
restriction rules for carried forward losses which restrict their use for any
particular period to £5 million plus 50% of profits in excess of that initial
£5 million.
(Unaudited)
Half year ended 31 December 2023
Revenue Capital Total
$000 $000 $000
Analysis of the charge in the period
Deferred tax expense (660) - (660)
Irrecoverable overseas tax (38) - (38)
--------------- --------------- ---------------
Total (698) - (698)
========= ========= =========
Deferred tax expense in the half year ended 31 December 2023 is due to the
partial utilization of the deferred tax.
(Unaudited)
Half year ended 31 December 2022
Analysis of the charge in the period Revenue Capital Total
$000 $000 $000
Deferred tax benefit 2,354 - 2,354
Current tax expense (740) - (740)
Irrecoverable overseas tax (34) - (34)
--------------- --------------- ---------------
Total 1,580 1,580
========= ========= =========
(Audited)
Year ended 30 June 2023
Analysis of the charge in the period Revenue Capital Total
$000 $000 $000
Deferred tax benefit 3,530 - 3,530
Irrecoverable overseas tax (59) - (59)
--------------- --------------- ---------------
Total 3,471 - 3,471
========= ========= =========
9 Earnings per share
Earnings per ordinary share is calculated with reference to the following
amounts:
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Revenue return
Revenue return attributable to ordinary shareholders ($000) (361) 1,001 2,996
--------------- --------------- ---------------
Weighted average number of shares in issue during period 6,850,792 8,743,425 7,797,333
Total revenue return per ordinary share ($0.05) $0.11 $0.39
========= ========= =========
Capital return
Capital return attributable to ordinary shareholders ($000) 2,581 3,960 4,320
--------------- --------------- ---------------
Weighted average number of shares in issue during period 6,850,792 8,743,425 7,797,333
Total capital return per ordinary share $0.38 $0.45 $0.55
========= ========= =========
Total return per ordinary share $0.32 $0.57 $0.94
========= ========= =========
Net asset value per share (Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Net assets attributable to shareholders ($000) 71,421 71,734 70,023
Number of shares in issue at period end 6,850,792 7,182,249 6,850,792
Net asset value per share $10.43 $9.99 $10.22
========= ========= =========
The Company continues to report according to SORP standards as provided by the
AIC. As such, the net asset value per share is provided in accordance with
IFRS standards inclusive of the Deferred Tax Asset of $0.38 per share, or
$2.61 million, as a result of the Company having Close status and no longer
availing itself of Section Investment Trust status under Section 1158 of the
Corporation Tax Act 2010.
10 Cash and cash equivalents
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Cash 5,901 5,279 6,090
U.S. Treasuries -* 9,448 3,465
--------------- --------------- ---------------
Total 5,901 14,727 9,555
========= ========= =========
The Board and Investment Manager oversee investments held in cash and cash
equivalents in accordance with the Investment Policy.
* U.S. Treasuries held for investment diversification purposes are not
included as cash equivalents.
11 Called up share capital
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Allotted, called up and fully paid:
6,850,792 ordinary shares of $0.01 each - equity 68 72 68
--------------- --------------- ---------------
Treasury shares:
3,483,374 ordinary shares of $0.01 each - equity 35 31 35
--------------- --------------- ---------------
Total shares 103 103 103
========= ========= =========
In September 2022, concurrent with the Fifth Anniversary Tender Offer, the
Board of Directors of the Company were authorised to allot Ordinary Shares of
the Company up to an aggregate nominal value of $511,910.30, with such
authority to expire on the fifth anniversary of the date of the passing of the
resolution. In addition, at the November 2022 Annual General Meeting ("AGM"),
the Board of Directors was authorised to allot relevant securities in the
Company up to a maximum aggregate nominal amount of $71,822 (being ten percent
of the total number of voting rights of the Company at the latest practicable
date prior to the publication of the Notice of AGM), with such authority to
apply until the conclusion of this year's AGM. The resolutions for the 2023
AGM included authorisation to the Company to allot equity securities up to an
aggregate nominal value of $45,672, that can be utilised for acquisitions by
the company. These transactions may result in the acquisition of other
operating businesses to further expand and develop shareholder value in
accordance with the investment programme.
12 Derivatives risk
The Company's investment policy may involve the use of derivatives (including,
without limitation, forward foreign exchange contracts, equity contracts for
difference swap agreements ("CFDs"), securities sold short and/or structured
financial instruments). The Company may use both exchange-traded and
over-the-counter derivatives as part of its investment activity. The cost of
investing utilising derivatives may be higher than investing in securities
(whether directly or through nominees) as the Company will have to bear the
additional costs of purchasing and holding such derivatives, which could have
a material adverse effect on the Company's returns. The low initial margin
deposits normally required to establish a position in such instruments permit
a high degree of leverage. As a result, depending on the type of instrument, a
relatively small movement in the price of a contract may result in a profit or
a loss which is high in proportion to the amount of funds actually placed as
initial margin and may result in unquantifiable further losses exceeding any
margin deposited. In addition, daily limits on price fluctuations and
speculative position limits on exchanges may prevent prompt liquidation of
positions resulting in potentially greater losses.
The use of derivatives may expose the Company to a higher degree of risk.
These risks may include credit risk with regard to counterparties with whom
the Company trades, the risk of settlement default, lack of liquidity of the
derivative, imperfect tracking between the change in value of the derivative
and the change in value of the underlying asset that the Company is seeking to
track and greater transaction costs than investing in the underlying assets
directly. Additional risks associated with investing in derivatives may
include a counterparty breaching its obligations to provide collateral, or,
due to operational issues (such as time gaps between the calculation of risk
exposure to a counterparty's provision of additional collateral or
substitutions of collateral or the sale of collateral in the event of a
default by a counterparty), there may be instances where credit exposure to
its counterparty under a derivative contract is not fully collateralised. The
use of derivatives may also expose the Company to legal risk, which is the
risk of loss due to the unexpected application of a law or regulation, or
because a court declares a contract not legally enforceable.
The use of CFDs is a highly specialised activity that involves investment
techniques and risks different from those associated with ordinary portfolio
security transactions. In a CFD, a set of future cash flows is exchanged
between two counterparties. One of these cash flow streams will typically be
based on a reference interest rate combined with the performance of a notional
value of shares of a stock. The other will be based on the performance of the
shares of a stock. Depending on the general state of short-term interest rates
and the returns on the Company's portfolio securities at the time a CFD
transaction reaches its scheduled termination date, there is a risk that the
Company will not be able to obtain a replacement transaction or that terms of
the replacement will not be as favourable as on the expiring transaction. At
31 December 2023 the Company held CFDs, as shown in the following table.
Security names Trade Shares (Unaudited)
currency (000) As at
31 December 2023
Unrealised
gain/(loss)
$000
Adevinta ASA NOK 29 1
Applus Services SA EUR 40 5
Ascential plc GBP 91 12
Atlantic Union Bank Corp USD (9) (15)
Azure Minerals Ltd AUD 25 **
Chevron Corp USD (25) (96)
Chr. Hansen A/S DKK 6 17
Covestro AG EUR 1 2
Dechra Pharmaceuticals plc GBP 40 7
DP Eurasia NV GBP 111 5
Egetis Therapeutics AB SEK 79 1
Exxon Mobil Corp USD (37) (39)
Genkyotex SA EUR 7 **
Global Interconnection Corp GBP 17 31
Grifols SA USD (12) (27)
JSR Corp JPY 30 **
Kin and Carta plc GBP 39 9
Livent Corp USD (10) (21)
Masonite International Corp USD (0) 1
Musti Group OY EUR 3 (1)
Network International Holdings plc GBP 231 (1)
Newmont Corp USD 1 1
Novozymes A/S DKK (8) (17)
Origin Energy Ltd AUD 43 18
Pendragon plc GBP 1,721 3
PGS ASA NOK 168 **
Provident Financial Services USD (5) (2)
Smart Metering Systems plc GBP 15 (4)
Smurfit Kappa Group plc USD (27) (52)
Softwareone Holding AG CHF 3 (2)
Spear Investment Group EUR 39 **
Telefonica Deutschland Holding AG EUR 92 **
Ten Entertainment Group plc GBP 15 1
TGS ASA NOK (12) (1)
Vitesco Technologies Group EUR 2 1
---------------
Total unrealised loss on derivatives (163)
=========
* Fewer than 500 shares.
** Less than $500.
13 Leverage
Leverage is the ratio between a fund's Total Exposure and its Net Asset Value,
expressed as a percentage. For the purposes of the AIFM Directive, leverage
can be calculated using two methods: (i) the gross method; and (ii) the
commitment method. Under the gross method, Total Exposure is the algebraic sum
of all investment positions (long and short), excluding cash and cash
equivalents and converting derivative instruments into the equivalent position
in the underlying asset. Under the commitment method, Total Exposure is the
algebraic sum of all investment positions (long and short), plus cash and cash
equivalents, minus hedging arrangements and offsetting instruments between
eligible assets.
The Company's leverage levels at 31 December 2023 are shown below:
Leverage Exposure Gross Commitment
Method Method
Maximum Permitted Limit 500% 250%
Actual 122% 130%
========= =========
The leverage limits are set by the AIFM and approved by the Board and are in
line with the maximum leverage levels permitted in the Company's Articles of
Association. The AIFM is also required to comply with the gearing parameters
set by the Board in relation to borrowings.
14 Performance fee
Subject to the satisfaction of the Performance Conditions, the Portfolio
Manager shall be entitled under the Portfolio Management Agreement, in respect
of each Performance Period, to receive 20% of the Total Return relating to
such Performance Period, provided that such amount shall not exceed 3% of the
Average NAV.
Performance Conditions
The Portfolio Manager's entitlement to a Performance fee in respect of any
Performance Period shall be conditional on the Closing NAV per Share in
respect of the Performance Period (adjusted for any changes to the NAV per
Share through dividend payments, Share repurchases (howsoever effected) and
Share issuances since Admission) being in excess of the Performance Hurdle and
High Water Mark. The Performance Hurdle is equal to the Starting NAV per Share
increased by two times the rate of return on 13 week Treasury Bills published
by the US Department of the Treasury over the Performance Period, less the
Starting NAV per Share; multiplied by the weighted average of the number of
Shares in issue (excluding any Shares held in treasury) at the end of each day
during the Performance Period. For the period ended 31 December 2023, no
Performance fee was paid. As at 31 December 2023, no amount was outstanding to
the Portfolio Manager in respect of the performance fee (31 December 2022:
$962,715, 30 June 2023: $nil).
15 Other assets and liabilities
The categories of other receivables and other payables include:
(Unaudited) (Unaudited) (Audited)
Half year ended Half year ended Year ended
31 December 2023 31 December 2022 30 June 2023
$000 $000 $000
Other receivables
FX currency sold - - 3
All other receivables(1) 77 157 70
--------------- --------------- ---------------
Total other receivables 77 157 73
========= ========= =========
Other payables
FX currency purchased - 8 -
FX currency sold - - 6
Custodian fees 19 10 15
Accounting fees 34 13 26
Audit fees 75 71 86
All other payables 210 353 216
--------------- --------------- ---------------
Total other payables 338 455 349
========= ========= =========
1 At 31 December 2023, all other receivables included prepaid expenses
and dividend and swap income.
16 Related party disclosure: Directors
Each of the Directors is entitled to receive a fee from the Company at such
rate as may be determined in accordance with the Articles of Incorporation.
The Directors' remuneration is $30,000 per annum for each Director, other
than:
- the Co-Chairmen, who will receive an additional $1,000 per
annum*;
- the Chairman of the Audit & Risk Committee, who will receive
an additional $5,000 per annum; and
- the Members of the Audit & Risk Committee, who will receive
an additional $1,000 per annum.
Each of the Directors is also entitled to be paid all reasonable expenses
properly incurred by them in connection with the performance of their duties.
These expenses will include those associated with attending general meetings,
Board or committee meetings and legal fees. The Board may determine that
additional remuneration may be paid, from time to time, to any one or more
Directors in the event such Director or Directors are requested by the Board
to perform extra or special services on behalf of the Company.
Carne Global Fund Managers (Ireland) Limited, was considered a related party
to the Company as it was considered to have significant influence over the
Company while in its role as AIFM. As described in Note 6, The Company
appointed Gabelli Funds, LLC to serve as AIFM effective 14 February 2023. The
related party transactions with the Directors are set out in the Directors'
Remuneration Report on pages 33 to 35 of the 2023 Annual Report and Financial
Statements as at 30 June 2023.
Related parties disclosure: other
The Portfolio management fee for the period ended 31 December 2023 paid by the
Company to the Portfolio Manager is presented in the Statement of
Comprehensive Income. Details of the Portfolio management fee paid during the
period is disclosed in Note 6. Details of Performance fee paid during the
period are disclosed in Note 13.
As at 31 December 2023, Associated Capital Group Inc., an affiliate of the
AIFM and Portfolio Manager, held 6,324,756 Ordinary Shares in the Company.
Associated Capital Group Inc. also agreed to subscribe for Special Voting
Loyalty Shares, as defined on pages 20 to 21 of the 2023 Annual Report and
Financial Statements as at 30 June 2023, which will increase its voting
interest when issued, with issuance pending.
Investors should note that as a close company with Associated Capital Group
Inc. controlling greater than 90% of shares Associated Capital Group Inc. may
be able to ensure the approval of certain shareholder resolutions.
Further details of related parties and transactions, including with the
Company's AIFM Gabelli Funds, LLC, are disclosed in Note 6.
Connected party transactions
All connected party transactions are carried out at arm's length. There were
no such transactions during the period ended 31 December 2023.
17 Contingent Liabilities and Commitments
As at 31 December 2023, the Company had no contingent liabilities or
commitments (31 December 2022: nil).
18 Post balance sheet events
On 31 January 2024 the Company declared an interim dividend for the fiscal
year ended 30 June 2023 of $0.12 per ordinary share, payable on 15 March 2024
to holders of ordinary shares on the register at the close of business on 1
March 2024.
On 5 February 2024 the Company announced an additional interim dividend for
the financial year ended 30 June 2023 of $0.24 per ordinary share, payable on
1 March 2024 to holders of ordinary shares on the register at the close of
business on 16 February 2024.
On 31 January 2024 the Company announced the commencement of an On-Market
Repurchase ("OMT") via an ongoing SETSqx tender for up to 5% of the shares
held by minority shareholders. Through the OMT, the Company repurchased 19,500
Ordinary Shares.
19 Portolio/schedule of investments
A statement of changes in the composition of the Portfolio during the
financial period is available to shareholders free of charge from the
Administrator on request.
Quantity Security Name Cost Market % Total
Value Investments
COMMON STOCKS
Communication Services
Media & Entertainment
38,605 Aimia Inc 144,787 91,638 0.1
14,700 Atlanta Braves Holdings Inc 435,181 581,826 0.9
3,250 Endeavor Group Holding 75,758 77,122 0.1
156,100 Imax China Holding Inc 165,660 133,939 0.2
10,078 Liberty Live Group 239,386 289,642 0.5
27,379 Liberty SiriusXM Group 849,801 852,465 1.4
329,631 NII Holdings Inc 626,707 115,371 0.2
15,181 TEGNA Inc 311,163 232,269 0.4
--------------- --------------- ---------------
2,848,443 2,374,272 3.9
========= ========= =========
Telecommunication Services
13,747 Telesat Corp 393,390 143,381 0.2
393,390 143,381 0.2
--------------- --------------- ---------------
Total Communication Services 3,241,833 2,517,653 4.1
========= ========= =========
Consumer Discretionary
Retailing
1,200 Bluegreen Vacations Holdings 88,833 90,144 0.1
43,100 Capri Holdings Ltd 2,285,699 2,165,344 3.5
79,300 Chico's FAS, Inc 594,684 601,094 1.0
2,650 iRobot Corp 126,064 102,555 0.2
24,250 NeoGames SA 657,981 694,277 1.1
36,450 Rover Group Inc 396,629 396,576 0.6
31,100 Sovos Brands Inc 695,255 685,133 1.1
19,703 Sportsmans Warehouse Holdings 252,220 83,935 0.1
8,200 Vista Outdoor Inc 208,345 242,474 0.4
--------------- --------------- ---------------
5,305,710 5,061,532 8.2
========= ========= =========
Total Consumer Discretionary 5,305,710 5,061,532 8.2
========= ========= =========
Consumer Goods
Household Goods & Home Construction
83,580 Albertsons Cos Inc 1,717,750 1,922,340 3.1
7,650 Contra Abiomed Inc 7,803 13,387 0.0
22,531 Contra Resolute Forest 31,994 45,062 0.1
27,003 ESC GCI Liberty Inc - - 0.0
--------------- --------------- ---------------
1,757,547 1,980,789 3.2
========= ========= =========
Total Consumer Goods 1,757,547 1,980,789 3.2
========= ========= =========
Energy
Energy
32,500 Euronav NV 579,882 571,928 0.9
24,643 Hess Corp 3,537,954 3,552,535 5.8
15,893 Pioneer Natural Resources Co 3,829,047 3,574,018 5.8
57,770 PNM Resources Inc 2,795,658 2,403,232 3.9
--------------- --------------- ---------------
10,742,541 10,101,713 16.4
========= ========= =========
Total Energy 10,742,541 10,101,713 16.4
========= ========= =========
Financials
Asset Management
14,700 Canaccord Genuity Group Inc 113,083 84,726 0.1
34,718 Screaming Eagle Acquisition Corp 366,253 368,011 0.6
--------------- --------------- ---------------
479,336 452,737 0.7
========= ========= =========
Banks
6,645 American National Bankshares Inc 259,558 323,944 0.5
6,411 Lakeland Bancorp Inc 79,596 94,819 0.2
--------------- --------------- ---------------
339,154 418,763 0.7
========= ========= =========
Total Financials 818,490 871,500 1.4
========= ========= =========
Health Care
Health Care Equipment & Supplies
21,150 Amedisys Inc 1,953,152 2,010,519 3.3
--------------- --------------- ---------------
1,953,152 2,010,519 3.3
========= ========= =========
Pharmaceuticals, Biotechnology & Life Sciences
113,381 Achillion Pharmaceuticals Inc - 56,690 0.1
29,800 Cerevel Therapeutics Holding 1,232,219 1,263,520 2.1
16,275 Clementia Pharmaceuticals Inc 420,388 - 0.0
132,674 Contra Adamas Pharmaceuticals Inc - 6,634 0.0
100,314 Contra Flexion Therapeutics Inc - 65,204 0.1
5,300 Contra Opiant Pharmaceuticals 3,445 2,650 0.0
108,746 Cyteir Therapeutics Inc 315,122 330,588 0.5
19,742 Grifols S.A. 396,237 228,218 0.4
61,900 Immunogen Inc 1,814,472 1,835,335 3.0
3,000 Karuna Therapeutics Inc 950,007 949,530 1.5
12,850 Olink Holding AB 328,028 323,177 0.5
4,250 Rayzebio Inc 260,944 264,222 0.4
--------------- --------------- ---------------
5,720,862 5,325,768 8.7
========= ========= =========
Total Health Care 7,674,014 7,336,287 11.9
========= ========= =========
Industrials
Professional Services
8,750 Daseke Inc 70,750 70,875 0.1
5,837 Pgt Innovations Inc 232,118 237,566 0.4
12,000 SP Plus Corp 607,679 615,000 1.0
15,000 Textainer Group Holdings Ltd 737,533 738,000 1.2
--------------- --------------- ---------------
1,648,080 1,661,441 2.7
========= ========= =========
Total Industrials 1,648,080 1,661,441 2.7
========= ========= =========
Information Technology
Semiconductors & Semiconductor Equipment
15,331 Sequans Communications 42,700 43,387 0.1
13,032 Tower Semiconductor Ltd 575,380 397,737 0.6
--------------- --------------- ---------------
618,080 441,124 0.7
========= ========= =========
Software & Computer Services
336,746 Altaba Inc 4,752,440 823,344 1.3
6,000 Alteryx Inc 282,736 282,960 0.5
37,200 EngageSmart Inc 847,172 851,880 1.4
20,150 Splunk Inc 2,985,460 3,069,853 5.0
--------------- --------------- ---------------
8,867,808 5,028,037 8.2
========= ========= =========
Total Information Technology 9,485,888 5,469,161 8.9
========= ========= =========
Materials
Materials
31,533 Arcadium Lithium plc 331,822 241,200 0.4
26,770 WestRock Corp 1,026,623 1,111,490 1.8
--------------- --------------- ---------------
1,358,445 1,352,690 2.2
========= ========= =========
Metals & Mining
3,500 Artemis Gold Inc 149,617 16,775 0.0
20,500 United States Steel Corp 905,736 997,325 1.6
--------------- --------------- ---------------
1,055,353 1,014,100 1.7
========= ========= =========
Total Materials 2,413,798 2,366,790 3.9
========= ========= =========
PREFERRED STOCK
Industrials
Professional Services
3,000 Textainer Group Holdings Ltd 72,558 3,069,853 5.0
--------------- --------------- ---------------
72,558 5,028,037 8.2
========= ========= =========
Total Consumer Discretionary 168,571 133,859 0.2
========= ========= =========
RIGHTS
Financials
Asset Management
22,199 Breeze Holdings Acquisition Corp 5,527 1,498 0.0
7,441 Clover Leaf Capital Corp 2,945 967 0.0
9,700 Financial Strategies Acquisition Corp 2,586 2 0.0
12,375 Mountain Crest Acquisition Corp 5,047 2,474 0.0
15,950 NorthView Acquisition Corp 3,942 1,571 0.0
12,711 Viveon Health Acquisition Corp 2,312 667 0.0
--------------- --------------- ---------------
22,359 7,179 0.0
========= ========= =========
Total Financials 22,359 7,179 0.0
========= ========= =========
190,215 Pan American Silver Corp CVR 28,643 97,961 0.2
--------------- --------------- ---------------
28,643 97,961 0.2
========= ========= =========
Total Materials 28,643 97,961 0.2
========= ========= =========
WARRANTS
Financials
Asset Management
9,287 Appreciate Holdings Inc 9,262 1 0.0
2,139 Banzai International Inc 150 92 0.0
566 BlueRiver Acquisition Corp 25 22 0.0
13,933 CXApp Inc 8,968 1,115 0.0
4,394 Kalera plc 1,984 1 0.0
7,975 NorthView Acquisition Corp 2,362 128 0.0
3,186 OCA Acquisition Corp 108 222 0.0
48,961 Presto Automation Inc 23,304 894 0.0
6,169 ProSomnus Inc 1,688 141 0.0
284 Prospector Capital Corp 1 24 0.0
25,000 Redwoods Acquisition Corp 775 769 0.0
1,429 Spectral AI Inc 50 300 0.0
16,460 Tastemaker Acquisition Corp 11,264 288 0.0
9,230 Viveon Health Acquisition Corp 2,933 55 0.0
--------------- --------------- ---------------
62,874 4,052 0.0
========= ========= =========
Total Financials 62,874 4,052 0.0
========= ========= =========
FIXED INCOME
U.S. Government Obligations
U.S. Treasury Bills
3,000,000 U.S. Treasury Bill, 01/02/2024 2,986,396 2,986,829 4.9
2,000,000 U.S. Treasury Bill, 01/25/2024 1,992,955 1,993,269 3.2
500,000 U.S. Treasury Bill, 02/01/2024 499,927 500,000 0.8
3,500,000 U.S. Treasury Bill, 02/15/2024 3,477,041 3,477,602 5.7
2,000,000 U.S. Treasury Bill, 02/22/2024 1,984,820 1,985,147 3.2
2,000,000 U.S. Treasury Bill, 03/14/2024 1,978,842 1,979,266 3.2
9,500,000 U.S. Treasury Bill, 08/02/2024 9,447,250 9,448,599 15.4
3,500,000 U.S. Treasury Bill, 11/01/2024 3,494,806 3,495,431 5.7
--------------- --------------- ---------------
25,862,037 25,866,143 42.1
========= ========= =========
Total U.S. Government Obligations 25,862,037 25,866,143 42.1
========= ========= =========
Notional Security Name Unrealized Market % Total
Amount
App/(Dep)
Value
Investments
Equity Contract for Difference Swap Agreements
Long Positions
29,050 Adevinta Asa 832 321,516
CommC Applus+ Services 4,423 442,280
90,607 Ascential plc 11,782 338,894
25,300 Azure Minerals Ltd 282 63,874
5,504 Chr. Hansen Holdings 16,638 461,797
1,253 Covestro AG 2,270 72,916
40,450 Dechra Pharmaceuticals plc 7,219 1,989,403
17,378 Disruptive Capital Warrant - 55,384
110,997 Dp Eurasia 4,925 134,778
78,551 Egetis Therapeutics AB 1,481 43,493
6,738 Genkyotex 1 1
17,378 Global Interconnection Group 30,906 55,384
29,905 JSR Corp (212) 852,731
39,000 Kin and Carta plc 8,750 65,925
2,550 Musti Group Oy (789) 73,576
230,994 Network International Holding (589) 1,147,848
1,036 Newmont Corp 1,440 42,880
43,211 Origin Energy Ltd 18,281 249,738
1,720,963 Pendragon plc 3,392 708,624
167,713 PGS ASA 192 141,460
14,867 Smart Metering Systems plc (3,740) 178,153
3,376 Softwareone Holding AG (2,005) 65,783
38,582 Spear Investment - 9,376
92,044 Telefonica Deutschland Holding 203 239,143
15,250 Ten Entertainment Group 583 80,290
1,547 Vitesco Technologies Group 803 160,585
--------------- ---------------
107,068 7,995,832
========= =========
Equity Contract for Difference Swap Agreements
Long Positions
(8,977) Atlantic Union Bankshares Co (15,171) (328,020)
(25,278) Chevron Corp (95,460) (3,770,466)
(36,907) Exxon Mobil Corp (39,121) (3,689,962)
(12,441) Grifols S.A. (26,735) (212,397)
(10,453) Livent Corp (21,429) (187,945)
(334) Masonite International Corp 1,275 (28,276)
(8,435) Novozymes (17,124) (463,851)
(5,303) Provident Financial Services (2,227) (95,613)
(26,626) Smurfit Kappa Group (52,451) (1,055,317)
(11,506) TGS ASA (1,444) (149,777)
--------------- --------------- ---------------
Total Equity Contract for Difference Swap Agreements (162,819) (1,985,792) (3.2)
========= ========= =========
Total Investments Including U.S. Treasuries $68,973,553 61,430,466 100
========= ========= =========
20 APPROVAL OF FINANCIAL STATEMENTS
The Directors approved the financial statements on 28 March 2024.
COMPANY INFORMATION
REGISTERED NAME
Gabelli Merger Plus+ Trust Plc
REGISTERED OFFICE
3 St. James's Place,
London, England, SW1A 1NP
BOARD OF DIRECTORS
Marc Gabelli
Marco Bianconi
John Birch
John Newlands
Yuji Sugimoto
James Wedderburn
PORTFOLIO MANAGER AND ALTERNATIVE INVESTMENT FUND MANAGER
Gabelli Funds, LLC
One Corporate Center
Rye, New York 10580 USA
COMPANY SECRETARY
Kin Company Secretarial Limited
Hyde Park House
5 Manfred Road
London
SW15 2RS
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
7 More London Riverside
London SE1 2RT
ADMINISTRATOR AND CUSTODIAN
State Street Bank and Trust Company
20 Churchill Place
Canary Wharf
London E14 5HJ
DEPOSITARY
State Street Trustees Ltd
20 Churchill Place
Canary Wharf
London E14 5HJ
REGISTRAR AND RECEIVING AGENT
Computershare Investor Services PLC
The Pavilions
Bridgwater Road
Bristol BS99 6ZZ
LEGAL & FINANCIAL ADVISERS
Dickson Minto W.S.
16 Charlotte Square
Edinburgh
EH2 4DF
Skadden, Arps, Slate, Meagher & Flom (UK) LLP
22 Bishopsgate
London
EC2N 4BQ
CONTACT INFORMATION AND WEBSITE
Please visit us on the Internet. Our homepage at www.gabelli.co.uk includes
useful information about the Company, such as daily prices, factsheets,
announcements, and current and historic half year and annual reports.
We welcome your comments and questions at +44 (0) 20 3206 2100 or via e-mail
at info@gabelli.co.uk.
GENERAL INFORMATION
SEDOL/ISIN: BD8P074/GB00BD8P0741
London Stock Exchange (TIDM) Code: GMP
Legal Entity Identifier (LEI): 5493006X09N8HK0V1U37
The Company's registrar is Computershare Investor Services PLC.
Computershare's website address is investorcentre.co.uk and certain details
relating to your holding can be checked through this website. Alternatively,
Computershare can be contacted on 0370 707 1390.
Change of name or address must be notified through the website or sent to The
Pavilions, Bridgwater Road, Bristol BS99 6ZZ.
The Company is a member of The Association of Investment Companies ("AIC"),
which publishes a number of useful fact sheets and email updates for investors
interested in investment companies www.theaic.co.uk.
Gabelli Merger Plus+ Trust Plc
www.gabelli.co.uk
info@gabelli.co.uk
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