HDIV.L Regulatory News (HDIV)

This announcement replaces Publication of Circular announcement released on 12 December at 16.40 under RNS number 5397W. 

Text which referred to a waiver rather than offset of fees has been corrected.

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 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.

12 December 2023

Henderson Diversified Income Trust plc

Legal Entity Identifier: 213800RV2228EO1JEN02

Publication of Circular in connection with the recommended proposals for the reconstruction and winding-up of the Company

Introduction

The Board of Henderson Diversified Income Trust plc (the "Company" or "HDIV")) announced on 4 October 2023 that it had agreed heads of terms for a combination of the assets of the Company with Henderson High Income Trust plc ("HHI" or "Henderson High Income") by means of a scheme of reconstruction and members' voluntary winding up of the Company under section 110 of the Insolvency Act (the "Scheme") and the issue of New HHI Shares to Shareholders who elect, or are deemed to have elected, to roll over their investment into HHI (the "Proposals").

Pursuant to the Proposals, which are conditional upon, amongst other things, the approval of Shareholders at the General Meetings and the approval of HHI Shareholders of the issue of the New HHI Shares, Shareholders will be entitled to elect to receive in respect of some or all of their Shares:

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

(b) cash (the "Cash Option").

The default option under the Scheme is for Shareholders to receive New HHI Shares meaning that Shareholders who, in respect of all or part of their holding of Shares, do not make a valid election or who do not make an election at all under the Scheme will be deemed to have elected for New HHI Shares in respect of such holding. Shareholders should note that the issue price for New HHI Shares under the Rollover Option may be above the market price of the HHI Shares if the HHI Shares continue to trade at a discount to their underlying net asset value. This discount was 7.41 per cent. as at 7 December 2023 (being the latest practicable date prior to the publication of the Circular).

The Board announces that the Company has today published a circular (the "Circular") to provide Shareholders with further details of the Proposals and to convene two general meetings of the Company (the "General Meetings") to seek approval from Shareholders for the implementation of the Proposals.

Background to and rationale for the Proposals

The Board has for some time been concerned that the diversified income strategy envisaged for the Company at launch in 2017 had not anticipated the economic conditions which have subsequently prevailed; for example, it has proved difficult for the portfolio managers to take advantage of their ability to invest in loans. The Board is concerned about the effectiveness of the investment 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 its consequential impact on costs, returns and liquidity, is also a concern for the Board. 

The Board invited proposals from several 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.

Following a review of those options put forward for the future of the Company, the Board believes that the proposed combination with HHI offers numerous benefits to those Shareholders who elect to rollover into HHI, whilst at the same time, importantly, offering Shareholders the option of a full cash exit at a value close to liquidation value.

Benefits of the Proposals

The Board believes that the Proposals have the following benefits for Shareholders:

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

§ Continuity of investment manager for Shareholders electing for the Rollover Option: 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 the Company's current fund managers.

§ Continuity of high income levels: As at 30 November 2023, the HHI Shares stood on a 6.7 per cent. dividend yield, representing a significant premium to the FTSE All-Share Index's yield, and have generated compound average dividend growth of 2.1 per cent. per annum over the last 10 years.

§ Strong investment track record: As at 30 November 2023, HHI had outperformed its benchmark (being a composite of 80 per cent. of the FTSE All Share Index (total return) and, 20 per cent. of the ICE BofA Sterling Non-Gilts Index (total return) rebalanced annually) over one, three, five and 10 years. HHI had also delivered a 20-year share price capital and total return of 40.7 per cent. and 383.2 per cent., respectively, and a NAV (with debt at fair value) capital and total return of 52.9 per cent. and 416.3 per cent., respectively[1].

§ Lower costs: HHI has a competitive management fee of 0.50 per cent. on average adjusted gross assets up to £325 million and 0.45 per cent. above, a fee below that currently paid by Shareholders (0.65 per cent. of net assets). HHI's latest ongoing charges ratio, 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 the Company over the past three years. The Company's three year average discount to NAV as at 7 December 2023 was 5.9 per cent. whereas HHI's was 1.6 per cent. (the Company's discount to NAV at 7 December 2023 was 5.47 per cent. whereas HHI's was 7.41 per cent and the Company's discount to NAV on 3 October 2023, the day before the announcement of the Proposals, was 9.81 per cent, compared to HHI's discount of 1.68 per cent on the same date).

§ Costs contribution from Janus Henderson: Janus Henderson may offer a contribution to the costs of the Proposals, by way of an offset of part, or all, of its ongoing management fees payable by HHI and, if applicable, HDIV, of 1.25 per cent. of the value of the assets rolling over to HHI, up to a maximum of £1.1 million, which will be allocated first to pay the fixed costs of HHI (up to £550,000) and any balance towards the Company's costs (the "Janus Henderson Contribution"). Janus Henderson will also waive any fee that would otherwise be payable on termination of its investment management agreement with the Company.

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

§ Ability to stay invested in a tax efficient manner: Pursuant to the Scheme, Shareholders electing to roll over their investment into HHI may do so without triggering a charge to capital gains tax. 

The Scheme

Subject to the passing of the Resolutions, and to the satisfaction of the other conditions of the Scheme, the Company will be placed into members' voluntary liquidation and the Scheme will take effect on the Effective Date (expected to be 16 January 2024). Upon the Scheme becoming effective, the cash, undertaking and other assets of the Company comprising the Rollover Pool will be transferred to HHI pursuant to the Transfer Agreement in consideration for the issue of New HHI Shares to those Shareholders who have elected, or are deemed to have elected, for the Rollover Option. The relevant number of New HHI Shares will be allotted to the Liquidators who will renounce the New HHI Shares in favour of such Shareholders.

The issue of New HHI Shares under the Scheme will be effected on a formula asset value ("FAV") for formula asset value basis as at the Calculation Date as described below and in detail in Part 4 of the Circular.

Shareholders who elect, or are deemed to elect, for the Rollover Option will be entitled to receive New HHI Shares on the basis of the ratio of the HDIV FAV per Share to the HHI FAV per Share, multiplied by the number of Shares so elected. The value of the Rollover Pool will be calculated on the basis of the Company NAV adjusted for: (a) the value of the Liquidation Pool, including the Retention; (b) any costs of the Proposals payable by the Company (to the extent the same do not form part of the value of the Liquidation Pool); and (c) the benefit of the Janus Henderson Contribution, if any, less the Cash Pool NAV and plus the benefit of the Cash Option Discount (being the "HDIV FAV"). The HDIV FAV per Share will be equal to the HDIV FAV divided by the total number of Shares that have elected for the Rollover Option (calculated to six decimal places). 

The calculation of the HHI FAV will take into account: (i) the fixed costs and expenses to HHI of the Proposals; (ii) any dividends declared but not paid by HHI to HHI Shareholders prior to the Effective Date; (iii) the Janus Henderson Contribution; and (iv) a premium of 1.0 per cent. The HHI FAV per Share will be equal to the HHI FAV divided by the number of HHI Shares in issue (excluding any treasury shares) on the Calculation Date (calculated to six decimal places).

The New HHI Shares will rank equally in all respects with HHI's existing issued shares other than in respect of dividends declared with a record date prior to the Effective Date.

The Cash Option

As part of the Proposals, Shareholders may elect to receive cash instead of New HHI Shares in respect of some or all of their holdings the Company. There will be no limit on the amount of HDIV Shares that may be elected for the Cash Option and Shareholders are entitled to elect for the Cash Option in respect of their entire holding of Shares.

Shareholders who elect, or are deemed to elect, for the Cash Option will be entitled to receive the net realisation proceeds of such portion of the Cash Pool to which they are entitled. The appropriation of the Company's assets to the Cash Pool will be based on the value of the Company NAV per Share less a discount of 1.0 per cent. (the "Cash Option Discount") (the "Cash NAV per Share") multiplied by the number of Shares so elected (calculated to six decimal places). The value of the Cash Pool will be equal to the Cash NAV per Share multiplied by the number of Shares that have elected for the Cash Option (the "Cash Pool NAV"). As described below, the value arising from the application of the Cash Option Discount shall be allocated to the value of the Rollover Pool for the benefit of Shareholders electing, or who are deemed to have elected, for the Rollover Option.

Illustrative entitlements

For illustrative purposes only, had the Calculation Date been market close on 7 December 2023 and assuming that no Shareholders exercise their right to dissent from participation in the Scheme, after deduction of the pre-liquidation interim dividend of 0.55 pence per Share and assuming 50 per cent. of the Company's current issued Share capital is elected for the Cash Option:

§ the Cash NAV per Share would have been 70.001574 pence and the HDIV FAV per Share would have been 70.916929 pence. The Cash NAV per Share and the HDIV FAV per Share may be compared with the Company's share price and cum-income NAV per Share as at 7 December 2023 which, when adjusted on a pro forma basis for the deduction of the pre-liquidation interim dividend of 0.55 pence per Share, were 66.850000 pence and 70.708661 pence, respectively; and

§ the HHI FAV per Share would have been 166.345569 pence which, for the Rollover Option, would have produced a conversion ratio of 0.426322 and, in aggregate, 38,810,802 New HHI Shares would have been issued to Shareholders electing for the Rollover Option under the Scheme, representing approximately 23 per cent. of the issued ordinary share capital of the enlarged Henderson High Income immediately following completion of the Scheme. The enlarged Henderson High Income would also then have paid listing fees in relation to the listing of the New HHI Shares equal to 0.082280 pence per HHI Share, which would have resulted in a cum-income NAV per HHI Share with debt at fair value of 164.995498 pence. This may be compared with HHI's share price and cum-income NAV per share (with debt at fair value and after deducting for HHI's fourth interim dividend in respect of the financial year to 31 December 2023 of 2.625 pence per share) as at 7 December 2023 of 152.5 pence and 164.7 pence, respectively.

Summary information on HHI

HHI is a UK investment trust whose investment objective is to invest in a prudently 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.

HHI's benchmark is a composite of 80 per cent. of the FTSE All-Share Index (total return) and 20 per cent. of the ICE BofA Sterling Non-Gilts Index (total return) rebalanced annually. As at 7 December 2023, HHI had a net asset value with debt at fair value of approximately £213,773,000 after deducting for HHI's fourth interim dividend in respect of the financial year ended 31 December 2023 of 2.625 pence per HHI Share.

The majority of HHI's assets are currently invested in the ordinary shares of listed companies, with the balance invested in listed fixed interest securities and preference shares. As at 30 November 2023, excluding cash, 87.4 per cent. of the portfolio was listed equities,11.0 per cent. was fixed interest securities and 1.6 per cent. was preference shares.

HHI invests predominantly in the securities of UK companies but can also invest up to 30 per cent. of gross assets outside of the UK.

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

Further details on HHI, including details of its performance track record, are set out in the Circular and in the HHI Prospectus.

Conditions of the Proposals

Implementation of the Proposals is subject to a number of conditions, including:

§ the passing of the Resolutions to be proposed at the First General Meeting and the Resolution to be proposed at the Second General Meeting (or any adjournment of those General Meetings), and any conditions of such Resolutions being fulfilled;

§ the HHI Resolution being passed and becoming unconditional in all respects;

§ the approval of the Financial Conduct Authority and the London Stock Exchange of the Admission of the New HHI Shares to the Official List and to trading on the Main Market; and

§ the Directors and the HHI Directors resolving to proceed with the Scheme.

If any condition is not satisfied, the Proposals will not become effective, the Company will not proceed with the members' voluntary winding up and instead will continue in existence and will continue to be managed under the current investment policy. In such circumstances the Directors would reassess the options available to the Company at that time

Transfer Agreement

If the resolution to be proposed at the Second General Meeting is passed, the Company will enter into the Transfer Agreement on the Effective Date, pursuant to which the Rollover Pool will be transferred to HHI in consideration for the issue of New HHI Shares to the Liquidators who will renounce the New HHI Shares in favour of Shareholders who have elected, or are deemed to have elected, for the Rollover Option. The parties to the Transfer Agreement have entered into irrevocable undertakings to enter into the Transfer Agreement on the Effective Date in the event that all of the conditions to the Scheme are satisfied in full.

Costs and expenses of the Proposals

The Company and HHI have each agreed to bear their own costs in relation to the Scheme. The costs of the Scheme payable by the Company are expected to be approximately £745,540 inclusive of VAT which, for the purposes of this calculation, is assumed to be irrecoverable where applicable. This estimate of costs excludes the Liquidators' retention to cover unknown liabilities (estimated at £50,000) and does not take account of any dealing costs which will be incurred by the Company in disposing of assets to meet Elections made and in realigning the portfolio in respect of the Rollover Pool to be established pursuant to the Scheme, prior to the Effective Date.

Assuming 50 per cent. of the Company's current issued Share capital is elected for the Cash Option, the fixed costs of the Proposals payable by HHI are expected to be approximately £461,300 inclusive of VAT which, for the purposes of this calculation, is assumed to be irrecoverable, where applicable. In addition, HHI will also incur listing fees in respect of the listing of the New HHI Shares and SDRT based on the value and constitution of the Rollover Pool.

In the event either or both of the Company and HHI resolve not to proceed to implement the Scheme on the terms described in the Circular (including if Shareholders and/or HHI Shareholders do not approve any resolutions required to implement the Scheme) then each party will bear its own costs. If the Scheme is not implemented, dealing costs (including SDRT) may still have been incurred by the Company in disposing of assets in order to meet Elections made and in realigning the Company's portfolio in respect of the Cash Pool and Rollover Pool to be established pursuant to the Scheme.

To the extent that any part of the Liquidation Pool, including the Retention, is not subsequently required to discharge the Company's liabilities, it will be distributed in cash to Shareholders on the Register on the Effective Date provided that if any such amount payable to any Shareholder is less than £5.00, it shall not be paid to the Shareholder but instead shall be paid by the Liquidators to the Nominated Charity.

Janus Henderson Fund Management UK Limited ("Janus Henderson") has agreed to make a contribution to the costs of the Scheme (the "Janus Henderson Contribution"). The Janus Henderson Contribution will be calculated as 1.25 per cent. of the value of the Rollover Pool (excluding the benefit of any amount of the Janus Henderson Contribution), up to a maximum contribution of £1,100,000 and subject to a minimum contribution of £360,000. 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 JHFM Contribution allocated to pay the Company's costs. For the avoidance of doubt, the Janus Henderson Contribution will be reflected in the calculation of the HHI FAV per Share and, if applicable, the HDIV FAV per Share.

In addition, Janus Henderson has agreed to waive, subject to the Scheme becoming effective, the termination fee which would otherwise be payable to it in respect of the termination of its investment management agreement with the Company

General Meetings

The Proposals are conditional, amongst other things, upon Shareholders' approval of the Resolutions to be proposed at the General Meetings. The First General Meeting will be held on 8 January 2024 at 11.00 a.m. and the Second General Meeting will be held on 16 January 2024 at 10.30 a.m, both at 201 Bishopsgate, London EC2M 3AE.

Further detail on the Resolutions is included in the Circular.

Recommendation

The Board, which has received financial advice from JPMC, considers the Proposals and the Resolutions to be proposed at the General Meetings to be in the best interests of Shareholders as a whole. In providing advice to the Board, JPMC has relied on the Board's commercial assessment of the Proposals.

Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolutions to be proposed at the General Meetings, as the Directors intend to do in respect of their own beneficial holdings, which in aggregate amount to 188,988 Shares, representing approximately 0.10 per cent. of the Company's issued share capital as at 7 December 2023. 

The Board cannot, and does not, give any advice or recommendation to Shareholders as to whether, or as to what extent, they should elect for either of the options under the Proposals. The choice between the options available under the Proposals will be a matter for each Shareholder to decide and will be influenced by his or her individual investment objectives and by his or her personal, financial and tax circumstances. Accordingly, Shareholders should, before deciding what action to take, read carefully all the information in the Circular and in the HHI Prospectus. Shareholders who are in any doubt as to the contents of the Circular or the HHI Prospectus or as to the action to be taken should seek their own personal financial advice from their financial adviser authorised under FSMA.

Dividends

The Board has announced a pre-liquidation interim dividend of 0.55 pence per Share which, subject to the Resolutions to be proposed at the First General Meeting being passed, will be paid to Shareholders prior to the Effective Date.

Shareholders receiving New HHI Shares under the Scheme will rank fully for all dividends declared by Henderson High Income with a record date falling after the date of the issue of those New HHI Shares to them.

Overseas Shareholders

The attention of Overseas Shareholders is drawn to the paragraph titled "Overseas Shareholders" in Part 3 of the Circular. 

Overseas Shareholders are entitled to participate in the Scheme. However, to the extent that HHI and/or the Liquidators and/or the Directors, acting reasonably, consider that any issue of New HHI Shares to an Overseas Shareholder would or may involve a breach of the securities laws or regulations of any jurisdiction or may violate any applicable legal or regulatory requirements or may require Henderson High Income to become subject to additional regulatory requirements (to which it would not be subject but for such issue) and HHI and/or the Liquidators and/or the Directors, as the case may be, have not been provided with evidence reasonably satisfactory to them from the relevant Overseas Shareholder that such Overseas Shareholder is permitted to hold New HHI Shares under any relevant securities laws or regulations of such overseas jurisdictions (or that HHI would not be subject to any additional regulatory requirements to which it would not be subject but for such issue), such Overseas Shareholder will be deemed to have elected for the Cash Option in respect of their entire holding.

Expected Timetable

Note: All references to time in this announcement are to UK time. Each of the times and dates in the above expected timetable (other than in relation to the General Meetings) may be extended or brought forward. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders by an announcement through a Regulatory Information Service.

Defined terms used in this announcement shall, unless the context requires otherwise, have the meanings ascribed to them in the Circular.

The Circular has been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website at https://www.janushenderson.com/en-gb/investor/product/henderson-diversified-income-trust-plc/. The HHI Prospectus will also shortly be available on HHI's website https://www.janushenderson.com/combination-with-henderson-diversified-income-trust-plc/.