(Alliance News) - M&G Investment Management Ltd said Monday it has made several approaches to buy investment fund UK Mortgages Ltd - all of which have been rejected.
M&G Investment Management, on behalf of its M&G Specialty Finance Fund, said it proposed in its most recent offer - made last Wednesday - a cash offer of 67 pence per share. The offer values the existing issued share capital of UK Mortgages at about GBP183 million.
Shares in UK Mortgages were trading 13% higher in London on Monday at 623.50 pence each.
M&G Specialty Finance Fund is a closed-ended fund that allows institutional private credit clients to gain investment exposure to pools of mortgages and consumer credit. UK Mortgages invests in a diversified portfolio of UK residential mortgages.
M&G noted its offer represents a 29% premium over the 1 month volume weighted average price of 52p per share, and a 36% premium over the 3 month VWAP of 49.4 pence per share.
"The UKML board has rejected all proposals to date and declined to enter into discussions which might allow it to proceed to a firm offer. MAGIM still hopes to engage with the UKML board with the goal of securing a recommended transaction that it believes is highly attractive and in the best interests of all UKML shareholders," M&G said.
The FTSE 100-listed asset manager believes the assets held by UK Mortgages is "complimentary" to those held by its Specialty Finance fund.
M&G also believes its fund will "enable" UK Mortgages it to "further build on its track record in acquiring and managing very similar assets in a private setting and is supported by the long-term capital of the Fund it manages".
"MAGIM acknowledges UKML's distinctive strengths, particularly its asset mix of both buy-to-let and owner occupied mortgages, as well as the forward flow agreements," M&G continued.
The asset manager added: "However, UKML has reached a critical juncture in its development. It has consistently struggled to deliver the returns and dividend levels targeted at its initial public offering in 2015, as further evidenced by the significant dividend reduction to 0.375p per share for the third and fourth quarters of the company's financial year ended 30 June 2020, which missed the company's reduced minimum dividend target of 1.125p per share per quarter announced in June 2019."
Adding to its "sustained low level of returns", M&G said UK Mortgages faces an uncertain outlook.
"UKML is unlikely to achieve an equivalent valuation for its shareholders and that an all cash offer at this level would provide UKML shareholders with an immediate cash exit at an attractive premium," M&G added.
M&G said UK Mortgages recent delayed refinancing at its Oat Hill assets shows the company is experiencing "significant headwinds as evidenced by the materially higher realised funding cost and asset quality concerns".
"The volatility in the residential mortgage backed security markets and the deteriorating macroeconomic impact on asset quality are expected to continue to put pressure on the company's long-term performance. MAGIM also believes that the impact of widening credit spreads and the weakening performance of UKML's underlying assets is not reflected in the company's reported monthly NAV, given the accounting basis on which it is calculated, which makes it an inaccurate representation of the company's true value," M&G added.
Shares in M&G were 0.5% lower in London on Monday at 177.25 pence each.
By Paul McGowan; paulmcgowan@alliancenews.com
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