REG - JPMorgan Mid Cap - Proposed Combination with JPM UK Smaller Companies

JPMorgan Mid Cap Investment TrustAnnouncement

14/11/2023 07:15

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RNS Number : 3043T  JPMorgan Mid Cap Invest Trust PLC  14 November 2023

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE,
PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN
OR INTO, THE UNITED STATES OF AMERICA (INCLUDING ITS TERRITORIES AND
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THE SAME WOULD BE UNLAWFUL.

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

 

14 November 2023

 

 

JPMorgan Mid Cap Investment Trust plc

 

Legal Entity Identifier: 549300QED7IGEP4UFN49

 

Proposed Combination with JPMorgan UK Smaller Companies Investment Trust plc

 

 

 

Introduction

 

The Board of JPMorgan Mid Cap Investment Trust plc (the "Company" or "JMF") is
pleased to announce that it has signed Heads of Terms with the Board of
JPMorgan UK Smaller Companies Investment Trust plc ("JMI") in respect of a
proposed combination of the Company and JMI. The combination, if approved by
each company's shareholders, will be effected by way of a scheme of
reconstruction of the Company under section 110 of the Insolvency Act 1986
(the "Scheme") and issuance of new ordinary shares of JMI as consideration for
the transfer of part of the Company's assets (together with the Scheme, the
"Transaction"). Under the terms of the Scheme, an up to 15 per cent. cash exit
opportunity will be offered to enable the Company's shareholders to realise
part of their investment in the Company.

 

The Board of the Company believes that the Transaction will enable those JMF
shareholders rolling over into JMI to benefit from, inter alia, continued
exposure to a UK long-only equity strategy delivered by one of the leading
managers of closed-ended investment vehicles in the UK, and also the greater
economies of scale that are expected to result from the enlarged asset base,
including cost efficiencies and greater liquidity in JMI's shares.

 

As at 10 November 2023 JMI had net assets of £228 million and on a net asset
value total return basis, it has outperformed its benchmark, The Numis Smaller
Companies plus AIM (excluding Investment Companies) Index over one (+5.3 per
cent.), three (+1.0 per cent.), five (+28.6 per cent.) and ten (+34.4 per
cent.) years to 31 October 2023 1  (#_ftn1) . Both the Company and JMI invest
for capital growth and, whilst JMI's investment objective is to invest in a
diversified portfolio of UK listed smaller companies, as opposed to the
Company's objective of investing in medium-sized UK listed companies, there is
a significant overlap in the holdings of the two portfolios, with both
portfolios managed by the same lead portfolio managers. As at 31 October 2023
there was a commonality in portfolio holdings between JMI and JMF of c.50%.

 

The current investment manager of both companies, JPMorgan Funds Limited
("JPMorgan"), and the Company's lead portfolio managers, Georgina Brittain and
Katen Patel, will, following the successful completion of the Transaction,
continue to manage the enlarged JMI, investing in accordance with JMI's
existing investment objective and policy.

 

In addition, although the Company's objective is to deliver capital growth,
the level of dividends paid by JMI is a key consideration for the Board of the
Company.  As part of the Transaction, the Board of JMI has agreed to
implement an enhanced dividend policy targeting a 4 per cent. yield on net
asset value per annum, calculated on the basis of 4 per cent. of net asset
value as at the end of the preceding financial year, payable in equal
quarterly instalments. Based upon a net asset value of 971.37p (as at 10
November 2023), the Company's total dividend of 31.75p for the 2022/2023
financial year represented a dividend yield of 3.26 per cent.

 

Summary of the Scheme

 

The Transaction will be effected by way of a scheme of reconstruction of the
Company under section 110 of the Insolvency Act 1986, resulting in the
Company's voluntary liquidation and the transfer of part of the Company's
assets to JMI in exchange for the issue of new ordinary shares of JMI ("New
JMI Shares") to existing JMF shareholders ("JMF Shareholders"). The number of
New JMI Shares issued to JMF Shareholders will be determined on a Formula
Asset Value ("FAV") for FAV basis. The FAVs shall be calculated based on the
net asset value of each of the Company and JMI on an agreed calculation date,
less each party's transaction costs.

 

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 Transaction. The Transaction will be subject to, inter alia, the
approval of JMF Shareholders and the shareholders of JMI, in addition to
necessary regulatory and tax approvals.

 

Subject to, and conditional on, the Scheme becoming unconditional and the
Transaction completing successfully, JMF Shareholders will be entitled to
elect to receive in respect of some or all of their JMF shares:

 

(i)            New JMI Shares; and/or

(ii)           a cash distribution (the "Cash Option") which, on an
aggregate basis will be limited to 15 per cent. of the Company's shares in
issue (excluding treasury shares). Should total elections for the Cash Option
exceed 15 per cent. of the Company's shares in issue (excluding treasury
shares), excess elections for the Cash Option will be scaled back into New JMI
Shares on a pro rata basis.

 

New JMI Shares will be issued as the default option under the Scheme in the
event that JMF Shareholders do not make a valid election under the Scheme or
only elect for the Cash Option in respect of a proportion of their shares, or
to the extent elections for the Cash Option are scaled back as a result of the
Cash Option being oversubscribed.

 

The Cash Option will be offered at a discount of 2 per cent. to the Company's
FAV (the "Cash Discount") less the costs of realising the assets allocated to
the cash pool. The Cash Discount will be for the benefit of the enlarged JMI.

 

The assets subject to the Cash Option will be segregated from, and treated as
separate to, the assets to be transferred to JMI pursuant to the Scheme.

 

Benefits of the Scheme

 

The board of directors of both JMI and JMF believe that the Scheme has a
strong rationale, which includes the following benefits:

 

·    Scale: The enlarged JMI is expected to have net assets in excess of
£430 million 2  (#_ftn2) , creating a leading investment vehicle for UK
smaller companies that provides exposure to fast growing, innovative companies
that help drive the UK domestic economy and an attractive dividend yield. The
scale of the enlarged company should improve secondary market liquidity for
its shareholders and will allow for cost efficiencies;

 

·    Reduced management fee for the enlarged JMI: Following completion of
the Transaction, JPMorgan has agreed to lower the threshold for tiering the
management fee payable by the enlarged JMI from 0.65 per cent. p.a. on JMI's
net assets up to £300 million and 0.55 per cent. p.a. thereafter to 0.65 per
cent. p.a. on JMI's net assets up to £200 million and 0.55 per cent. p.a.
thereafter (the "New Management Fee"), to align with the Company's existing
management fee.

 

The re-tiering of the management fee has the effect of delivering a reduction
in the blended fee rate for shareholders of 2.7 basis points, assuming that 85
per cent. of JMF's net assets are rolled over into JMI following a full
take-up of the Cash Option;

 

·    Lower ongoing charges: Shareholders in the enlarged JMI are expected
to benefit from an ongoing expense ratio of c.0.80 per cent., considerably
lower than the Company's ongoing expense ratio of 0.93 per cent. for the last
financial year;

 

·    Contribution to costs: As described below, JPMorgan has agreed to
make a significant cost contribution in respect of the Transaction by way of a
fee waiver which is expected to offset some of the direct transaction costs
for shareholders in the enlarged JMI;

 

·    Three-year continuation vote: At present, the Company does not have a
commitment to hold a continuation vote in the future. The enlarged JMI will
retain JMI's existing continuation vote which is put to shareholders every
three years; and

 

·    Shareholder diversification: The Transaction will allow a number of
shareholders to consolidate their holdings across the two companies while also
creating a more diverse shareholder base.

 

Costs of the Transaction

 

Each company will bear its own costs in respect of the Transaction which will
be reflected in the FAV for each company.

 

For the avoidance of doubt, any costs of realignment or realisation of the
Company's portfolio prior to the Scheme becoming effective, any stamp duty,
stamp duty reserve tax or other transaction tax, or investment costs incurred
by JMI for the acquisition of the Company's portfolio or the deployment of the
cash therein upon receipt shall be borne by the enlarged JMI, including the
London Stock Exchange admission fees.

 

JPMorgan Cost Contribution

 

JPMorgan has proposed a contribution to the costs of the Transaction in the
form of a fee waiver, being six months of the New Management Fee payable by
the enlarged JMI in respect of the net asset value of the assets transferred
from the Company to JMI under the Scheme ("Cost Contribution").

 

The net asset value of the assets transferred under the Scheme are currently
estimated to be approximately £210 million 3  (#_ftn3) .

 

The Cost Contribution will be for the benefit of the shareholders of the
enlarged JMI.

 

Debt Facilities

 

It is expected that the Company's existing facilities will be repaid and
closed prior to the implementation of the Scheme and JMI has the capacity
under its existing arrangements to maintain a constant level of gearing
inclusive of the capital being received in the combination.

 

Final Dividend

 

There is no change proposed to the Company's final dividend, which is due to
be paid on 15 November 2023. The Company expects to pay out a significant
proportion of its accumulated revenue reserves via a pre-liquidation dividend
to all JMF Shareholders in lieu of the first half yearly dividend payable in
2024.

 

Board Structure

 

Following completion of the Transaction, it is expected that the Board of the
enlarged JMI will consist of seven directors, four from the current board of
JMI and three new directors from the board of the Company. It is intended that
one of the former Company directors will step down at, or prior to, the
enlarged JMI's 2024 AGM.

 

New Name

 

It is proposed that the enlarged JMI will be renamed JPMorgan UK Small Cap
Growth & Income plc, with JUGI as the new ticker.

 

Expected Timetable

It is intended that the documentation in connection with the Transaction will
be posted to shareholders in January 2024, with a view to convening general
meetings in February 2024.  The latest date for the Scheme to be determined
to be unconditional is 31 March 2024, unless extended by mutual agreement of
the Company and JMI.

 

The Chairman of the Company, John Evans, commented:

 

"The Board believes that the proposed combination with JPMorgan UK Smaller
Companies Investment Trust plc will provide shareholders with continuity of
investment process and philosophy but within a broader market opportunity. The
new combined vehicle will afford the managers the freedom to allocate capital
across the enlarged universe where the opportunities are most attractive
including maintaining, if they consider it appropriate, a significant exposure
to constituents of the FTSE 250 Index, while also investing in AIM traded
companies.

 

The proposed combination will create a larger and more liquid investment trust
with significantly lower overall costs. It will also make full use of the
investment trust structure, with the new enhanced dividend policy, providing
income as well as the potential for capital growth for its shareholders."

 

 

 

 

 

For further information please contact:

 

 

 JPMorgan Mid Cap Investment Trust plc                                                                                                                         Contact via Company Secretary

 John Evans

 JPMorgan Funds Limited                                                                                                                                        +44 (0) 20 7742 4000

 Simon Crinage

 Fin Bodman

 JPMorgan Funds Limited (Company Secretary)                                                                                                                    +44 (0) 20 7742 4000

 Investec Bank                                                                                                                                                 +44 (0) 20 7597 4000
 plc

 David Yovichic

 Tom Skinner

 Helen Goldsmith

 

 

 

Important Information

 

This announcement contains information that is inside information for the
purposes of Article 7 of the UK version of Regulation (EU) No. 596/2014 which
is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as
amended (the Market Abuse Regulation). The person responsible for arranging
for the release of this announcement on behalf of JPMorgan Mid Cap Investment
Trust plc is Alison Vincent of JPMorgan Funds Limited.

 1  (#_ftnref1) Source: J.P. Morgan Asset Management/Morningstar. Net asset
value performance data has been calculated on a NAV to NAV basis, including
ongoing charges and any applicable fees, with any income reinvested, in GBP.
NAV is the cum income NAV with debt at fair value, diluted for treasury and/or
subscription shares if applicable, with any income reinvested. The performance
of the company's portfolio, or NAV performance, is not the same as share price
performance and shareholders may not realise returns which are the same as NAV
performance.

 2  (#_ftnref2) Based on the latest estimated NAV of each of JMI and JMF and
assuming no take up of the Cash Option as at 10 November 2023.

 3  (#_ftnref3) Based on the latest estimated NAV of JMF and assuming no take
up of the Cash Option as at 10 November 2023.

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