HDIV.L Regulatory News (HDIV)

 

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 POSSESSIONS, ANY STATE OF THE UNITED STATES AND THE DISTRICT OF COLUMBIA), AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, THE REPUBLIC OF SOUTH AFRICA, IN ANY MEMBER STATE OF THE EEA OR IN ANY OTHER JURISDICTION IN WHICH 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.

 

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] 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] 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."

 

 

 

 

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.