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(Alliance News) - City of London Investment Group PLC said Tuesday it plans to buy US investment firm Karpus Management Inc in an all-share merger that will see the owners of Karpus take a 48% stake in CLIG.
The deal will see CLIG issue 24.1 million shares to Karpus for 325 pence per share, worth GBP78.4 million.
Karpus shareholders also are entitled to a cash payment of up to USD550,000 based on the net working capital of Karpus upon the completion of the deal.
Shares in CLIG were trading 2.2% higher in London on Tuesday morning at 332.24 pence each, giving the company a market capitalisation of GBP88.3 million.
The owners of Karpus, which at May 31 had USD3.4 billion in funds under management for 2,273 client accounts, will hold 47.6% of the enlarged company.
At March 31, CLIG held USD4.4 billion funds under management.
Following admission of the new shares, CLIG will have 50.7 million shares in issue.
"The company has, over the years, looked at a wide range of businesses to identify opportunities to spread risk, create economies of scale, and provide greater security and career opportunities for employees. On each occasion when management looked in depth at a business, they decided for cultural or structural reasons, or as a result of conflicts of interest, not to proceed," CLIG commented on the merger deal.
But Karpus, CLIG explained, is "highly complementary" and "represents an opportunity for significant diversification".
CLIG also said Karpus will "reinforce" its presence in the US and has the potential to be earnings enhancing for the first full financial year following completion.
The company believes the merger is "sound" despite the Covid-19 pandemic.
"The board has considered carefully the impact of the Covid-19 pandemic and has concluded that the strategic rationale for the merger remains sound and indeed may have been enhanced given the strong strategic fit of the two businesses, the diversification of the revenue base and risk mitigation which the directors strongly believe will result from the merger. Furthermore, the board is confident that both businesses are well set to take advantage of opportunities when the situation has stabilised," CLIG said.
In the year ended June 30, 2019, Karpus recorded net fee income of USD25.7 million with a pretax profit of USD500,000.
CLIG Chair Barry Aling said: "CLIG shareholders will know that the objective of diversifying our revenue base beyond the capacity-constrained emerging market [closed-end funds] universe has been a strategic priority for some years and this merger will result in a quantum leap in realising that goal.
"While the two businesses share many similarities in terms of a CEF-driven investment philosophy and process, they are highly complementary in terms of their markets and client segments with negligible overlap. I believe that this combination will result in Clig becoming the global 'Go-To' CEF house, offering a value-driven commitment to long-term investment performance for its clients and enhanced growth opportunities for its shareholders and employees."
By Paul McGowan; paulmcgowan@alliancenews.com
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