REG - Henderson Div IncTst - Proposed Combination with Henderson High Income

Henderson Diversified Income TrustAnnouncement

04/10/2023 07:15

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RNS Number : 5914O  Henderson Diversified Income TstPLC  04 October 2023

 

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This announcement contains information that is inside information for the purposes of Article 7 of the UK version of Regulation (EU) No. 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended (the Market Abuse Regulation).
 
 
 
04 October 2023

 

Henderson Diversified Income Trust plc

Legal Entity Identifier: 213800RV2228EO1JEN02

Proposed Combination with Henderson High Income Trust plc

 

Introduction

 

The Board of Henderson Diversified Income Trust plc (the "Company" or "HDIV")
is pleased to announce that it has agreed heads of terms with the Board of
Henderson High Income Trust plc ("HHI") in respect of a proposed combination
of HDIV with HHI. The combination, if approved by each company's shareholders,
will be effected by way of a scheme of reconstruction and winding up of HDIV
under section 110 of the Insolvency Act 1986 (the "Scheme") and the associated
transfer of part of the assets and undertaking of HDIV to HHI in exchange for
the issue of new ordinary shares in HHI ("New HHI Shares") (together the
"Proposals").

 

HDIV shareholders will be able to elect either to receive New HHI Shares and /
or realise part, or all, of their holding for cash.

 

Background to the Scheme

 

As highlighted in the Chairman's statement in the most recent annual report,
the Board has for some time been concerned that the diversified income
strategy envisaged for the Company at launch had not anticipated the economic
conditions which have subsequently prevailed. For example, it has proved
difficult for the fund managers to take advantage of their ability to invest
in loans and the Board were concerned about the effectiveness of this strategy
in maintaining income levels and the capital value of the Company in real
terms in the future. The diminishing size of the Company, with consequential
impact on costs, returns and liquidity, was also a concern for the Board.

 

The Board invited proposals from a number of investment companies, with
alternative investment processes which could offer greater scope to provide a
more consistent return to shareholders, as well as examining various other
options for the Company, including liquidation.

 

The Board believes that the proposal put forward by HHI offers numerous
benefits to those shareholders who elect to rollover into HHI, whilst at the
same time, importantly, offers shareholders the option of a full and
unrestricted cash exit at a value close to liquidation value.

 

Benefits of the Proposals

 

The Board believes that the Proposals have a number of benefits for HDIV
shareholders:

·      Opportunity for full cash realisation: An unlimited cash exit
option will give HDIV shareholders the option to realise all or part of their
holding at a 1.0 per cent. discount to HDIV's net asset value ("NAV") per
share.

·      Continuity with Janus Henderson: Janus Henderson Investors UK
Limited ("Janus Henderson") has a recognised equity income franchise which
offers shareholders the potential for greater total return. HHI includes a
fixed income allocation which is selected by HDIV's current fund managers.

·      Continuity of high income levels: HHI has a 6.5 per cent.
dividend yield, a significant premium to the FTSE All-Share Index's yield, and
dividend growth of 2 per cent. per annum over the last 10 years.

·      Strong investment track record: HHI has outperformed its
benchmark (80 per cent. FTSE All Share Index, 20 per cent. ICE BofA Sterling
Non Gilts Index rebalanced annually) over 1, 3, 5 and 10 years and delivered a
20-year share price capital return ahead of CPI inflation.

·      Lower costs: HHI has a competitive management fee of 0.50 per
cent. on gross assets up to £325 million and 0.45 per cent. above, a fee
below that currently paid by HDIV shareholders (0.65 per cent. of net assets).
HHI's latest ongoing charges ratio ("OCR"), which would be expected to
decrease post the Scheme given greater scale, is 0.84 per cent., versus 0.98
per cent. for HDIV.

·      Narrower discount: HHI has a record of trading at a tighter
discount to its underlying NAV when compared to HDIV historically. 1  (#_ftn1)
HDIV's discount to NAV as at 2 October 2023 was (10.1) per cent. whereas HHI's
was (4.0) per cent., providing attractive look-through value for HDIV
shareholders electing to receive New HHI Shares.

·      Significant cost contribution from Janus Henderson: Janus
Henderson, the investment manager of both HHI and HDIV, will offer a
contribution to the costs of the Proposals of 1.25 per cent. of the value of
the assets rolling over to HHI, up to a maximum of £1.1 million. Janus
Henderson will also waive any fee that would otherwise be payable on
termination of the HDIV investment management agreement.

·      Increase in scale: An enlarged HHI will allow fixed costs to be
spread over a larger cost base, alongside improving liquidity and aiding
marketing.

·      Ability to stay invested in a tax efficient manner: As part of
the Proposals, HDIV shareholders will have the option of a rollover into HHI
without triggering capital gains tax.

 

Summary of the Scheme

 

The Proposals will be effected by way of a scheme of reconstruction of HDIV
under section 110 of the Insolvency Act 1986, resulting in the voluntary
winding up of HDIV and the transfer of part of HDIV's cash, assets and
undertaking to HHI on a Formula Asset Value ("FAV") for FAV basis.

 

Under the Scheme, HDIV shareholders will be entitled to elect to receive in
respect of some or all of their HDIV shares:

 

·      New HHI Shares (the "Rollover Option"); and/or

·      cash (the "Cash Option").

 

The Cash Option will be offered at a discount of 1.0 per cent. to the HDIV NAV
per share (the "Cash Discount"). There will be no limit on the number of HDIV
shares which may be elected for the Cash Option. New HHI Shares will be issued
as the default option under the Scheme in the event that HDIV shareholders do
not make a valid election under the Scheme.

 

As noted above, the Scheme will be undertaken on a FAV for FAV basis. The FAV
of HHI (the "HHI FAV") and the FAV of HDIV (the "HDIV FAV") for the purposes
of the Scheme will be calculated in accordance with the respective company's
normal accounting policies and take into account any respective costs in
excess of the Janus Henderson Contribution (as defined below) payable by each
Company, with the exception of stamp duty and listing fees which will be paid
by the enlarged HHI, and any dividends declared but not paid prior to the
calculation date.

 

The HHI FAV will be equal to the HHI NAV, subject to the aforementioned
adjustments, plus a premium of 1.0 per cent. The uplift in FAV delivered by
the Cash Discount will be for the benefit of the HDIV shareholders electing
for the Rollover Option.

 

The Scheme will be subject to approval by the shareholders of both companies
in addition to regulatory and tax approvals. In accordance with customary
practice for such transactions involving investment trusts, the City Code on
Takeovers and Mergers is not expected to apply to the Scheme. A timetable and
further details of the Scheme will be announced in due course.

 

Costs of the Proposals and Janus Henderson Contribution

 

As noted above, Janus Henderson has undertaken to make a contribution to the
costs of the Proposals. This contribution will be calculated as 1.25 per cent.
of the value of the assets transferred to HHI by HDIV, up to a maximum
contribution of £1.1 million and subject to a minimum contribution of
£360,000, whether or not the Scheme is implemented (the "Janus Henderson
Contribution"). The Janus Henderson Contribution will be allocated first to
pay HHI's fixed costs, up to a cap of £550,000, with any balance of the Janus
Henderson Contribution allocated to pay HDIV's costs. The Janus Henderson
Contribution will be reflected in the relevant FAVs of each company.

 

Dividend

 

It is expected that the Company will pay a pre-liquidation interim dividend of
current year net revenue to the extent that it exceeds current year
distributions to all shareholders, including those who elect for the Cash
Option.

Overview of HHI

 

Summary

 

HHI is a United Kingdom-based investment trust whose investment objective is
to invest in a diversified selection of both well-known and smaller companies
to provide investors with a high dividend income stream while also maintaining
the prospect of capital growth.

 

The majority of HHI's assets are invested in ordinary shares of listed
companies with the balance in listed fixed interest securities. 88 per cent.
of the portfolio is currently listed equities and 12 per cent. fixed interest
securities. 2  (#_ftn2) HHI invests predominantly in equities listed in the UK
but can also invest up to 30 per cent. of total assets in non-UK listed
companies.

 

HHI has an active policy of using gearing, both in the form of bank and
longer-term borrowings, to enhance income returns but also to achieve capital
growth over time. A portion of gearing is usually employed with respect to
HHI's fixed interest securities to generate additional income.

 

HHI is managed by Janus Henderson, a global asset management firm, which has
over £250 billion under management. Janus Henderson is also the incumbent
investment manager of HDIV and in total manages 12 investment trusts.

 

Following completion of the Scheme, it is intended that the HHI portfolio will
continue to be managed on the same basis as it is currently. In particular,
the HHI investment policy and investment objective will not be amended in
connection with the Scheme and the portfolio will continue to be managed by
David Smith CFA as the lead portfolio manager, supported by the 15-person
strong Janus Henderson Global Equity Income team and the fixed income team for
the bond allocation.

 

Management fee and ongoing costs

 

The base management fee is charged at 0.50 per cent. of average adjusted gross
assets up to £325 million. A reduced management fee of 0.45 per cent. is
applied to average adjusted gross assets above £325 million. This average
value is calculated by using the values on the last day of each of the two
calendar years preceding the reporting year. Average adjusted gross assets are
gross assets less current liabilities.

 

The ongoing charge for the year-ended 31 December 2022 was 0.84 per cent..

 

Expected timetable

 

It is currently envisaged that a shareholder circular setting out the details
of the Scheme and containing notices of the general meetings at which
shareholder approval for, inter alia, the Scheme will be sought, will be sent
to shareholders in December 2023. The relevant general meetings are expected
to be held in January 2024.

 

Angus Macpherson, Chair of HDIV, said:

 

 "Importantly, shareholders will be offered a choice - a full cash exit at
close to liquidation value, rollover into HHI, or a combination of both. Those
shareholders who roll will maintain a similar income profile, managed by the
same investment group, but with the advantage of greater scale and liquidity.
Whilst the rollover option represents a change of asset allocation to a
majority equity mandate, the fixed income team of HDIV will continue to manage
the smaller bond allocation of HHI, providing some continuity for
shareholders. HHI's record, if it continues in the future, of capital growth,
a high and growing dividend and trading at a tighter discount to NAV should
also benefit shareholders."

 

 

 For further information please contact:
 Henderson Diversified Income Trust plc   Contact via Janus Henderson
 Angus Macpherson
 Janus Henderson Investors UK Limited     +44 (0) 207 818 1818
  Dan Howe (Head of Investment Trusts)

 Oliver Packard (Sales)
  Harriet Hall (PR)
 J.P. Morgan Cazenove                     +44 (0) 203 493 8000
 William Simmonds

 Rupert Budge

 

 

Important Information

 

The person responsible for arranging for the release of this announcement on
behalf of Henderson Diversified Income Trust plc is Janus Henderson
Secretarial Services UK Limited acting as Corporate Secretary.

 

This announcement is not for publication or distribution, directly or
indirectly, in or into the United States of America. This announcement is not
an offer of securities for sale into the United States. The securities
referred to herein have not been and will not be registered under the U.S.
Securities Act of 1933, as amended, and may not be offered or sold in the
United States, except pursuant to an applicable exemption from registration.
No public offering of securities is being made in the United States.

 1  (#_ftnref1) As at 02 October 2023. HDIV's average discount over the last
three years has been (5.7) per cent versus (1.7) per cent for HHI. Source:
Refinitiv

 2  (#_ftnref2) As at 31 August 2023

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