IIT.L Regulatory News (IIT)

PuPTHIS 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, AUSTRALIA, CANADA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR ANY JURISDICTION FOR WHICH THE SAME COULD 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.

The Independent Investment Trust plc (the "Company")

Publication of a circular in relation to the recommended proposals for the members' voluntary winding up of the Company and combination with The Monks Investment Trust PLC

Introduction

The Board announced on 9 August 2022 that it has agreed the heads of terms for a combination of the assets of the Company with The Monks Investment Trust PLC ("Monks" or "MNKS") 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 MNKS Shares to Shareholders who elect, or are deemed to have elected, to roll over their investment into Monks (the "Proposals").

The Company has today published a circular to Shareholders in connection with the Proposals (the "Circular").

Defined terms used in this announcement have the meanings given to them in the Circular.

The Proposals, which are conditional upon, amongst other things, the approval of Shareholders at the General Meetings and the approval of MNKS Shareholders to the issue of the New MNKS Shares, comprise a members' voluntary liquidation and a scheme of reconstruction of the Company under which Shareholders will be entitled to elect to receive in respect of some or all of their Shares:

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

(b) cash (subject to the application of a discount of 2 per cent. to the Residual Net Asset Value per Share) (the "Cash Option").

The default option under the Scheme is for Shareholders to receive New MNKS 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 MNKS Shares in respect of such holding.

Shareholders can make different Elections in respect of different parts of their holdings. There is no limit on the amount of Shares which may be elected for the Cash Option. However, Overseas Shareholders should ensure they have read paragraph 15 of Part 4 of the Circular. 

The Board considers the Proposals to be in the best interests of Shareholders as a whole and recommends that Shareholders vote in favour of the Resolutions required to implement the Proposals at the General Meetings.

Background to and rationale for the Proposals

As announced in August 2022, Max Ward, the Company's Managing Director and full-time portfolio manager, has informed the Board of his intention to retire. Given the impact which Mr Ward's retirement will have on the Company, the Board has carefully considered the various options available to the Company and has decided that a combination with Monks offers the greatest benefits to Shareholders.

The Board agreed, in principle, the heads of terms for a combination of the assets of the Company with Monks by means of the Scheme. Monks is managed by the Global Alpha team at Baillie Gifford & Co ("Baillie Gifford").

The Global Alpha team within Baillie Gifford, which took over the management of Monks in 2015, has a strong long-term track record, and the wide diversification of the Monk's portfolio, which is beyond the resources of the Company, is a feature which the Board considers attractive against an uncertain geopolitical background which may prove persistent. The scale of Monks, with a market capitalisation of £ 2.08 billion at 29 September 2022 and no dominant shareholders, allows for a liquid market in MNKS Shares.

The MNKS Board currently comprises five directors, all of whom are non-executive. It has been agreed that none of the Directors will be joining the MNKS Board as part of the Scheme. Accordingly, the MNKS Board will continue to consist of the five incumbent MNKS Directors upon completion of the Scheme. 

Benefits of the Proposals

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

· Ability to stay invested in a tax efficient manner: As part of the Scheme, Shareholders will have the option of a rollover into Monks which should not (depending on a Shareholder's personal circumstances) trigger a capital gains tax liability. 

· 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 level near to liquidation value, should they so wish.

· Continuity of investment proposition: Shareholders will be able to maintain exposure to similar investment objectives but with a more diversified portfolio.

· Baillie Gifford cost contribution: Baillie Gifford has agreed to make a cost contribution by way of a six month fee reduction based on the quantum of assets acquired by Monks. This will be for the benefit of all shareholders of the enlarged Monks.

· Increase in scale: An enlarged Monks will allow fixed costs to be spread over a larger cost base, alongside potentially improving liquidity and aiding marketing.

The Proposals are also expected to result in an uplift in the valuation of Shareholders' investments due to the narrower discount to net asset value at which the MNKS Shares have historically traded compared with the Shares prior to the announcement of the Proposals. Over the 12 months ended 3 October 2022, the Company's Shares and MNKS Shares traded at average discounts to cum-income net asset value of 12.92 per cent. and 5.39 per cent. respectively. The Board believes this provides an attractive look-through value for Shareholders

Summary information on Monks

Monks is a UK based investment trust whose investment objective is to invest across the globe to achieve capital growth, which takes priority over income and dividends.

Monks' investment objective is pursued through applying a patient approach to investment, principally from a differentiated, actively managed global equity portfolio containing a diversified range of growth stocks - companies with above average earnings growth potential - which Monks expects to hold for around five years on average. Monks is not bound to make investments in circumscribed locations or markets and should not be viewed as a proxy for an index. The Monks portfolio, which includes stocks with a range of different growth profiles, will typically contain in excess of 100 stocks from around the world. As at 29 September 2022, Monks had total assets of £2.53 billion.

The Proposals, if implemented, are anticipated to result in gross assets of Monks of approximately £2.64 billion (based on the respective gross asset values of each of the Company and Monks as at 29 September 2022 and assuming 50 per cent. of the Company's current issued Share capital is elected for the Cash Option).

Monks' alternative investment fund manager for the purposes of the UK AIFMD Laws is Baillie Gifford & Co Limited ("BGL"), which has delegated the day-to-day management of the portfolio to Baillie Gifford. Baillie Gifford is an independent fund management group which has, in aggregate, approximately £231 billion of funds under management or advice (as at 30 June 2022). Following completion of the Scheme, it is intended that the Monks portfolio will continue to be managed on the same basis as it is currently. In particular, the Monks investment objective and investment policy will not be amended in connection with the Scheme and the Monks portfolio will continue to be managed by Spencer Adair, supported by Malcolm MacColl and Baillie Gifford's Global Alpha team. 

Further details on Monks, including details of its performance track record, are set out in Part 2 of the Circular and in the accompanying MNKS Prospectus.

Summary of the Scheme mechanics

Entitlements under the Scheme

Under the Scheme, each Shareholder on the Register on the Record Date (other than a Sanctions Restricted Person and certain Overseas Shareholders) may elect to receive:

· such number of New MNKS Shares as have a value (at the MNKS FAV per Share) equal to the proportion of the Rollover Pool attributable to the number of Shares so elected, being the Rollover Option; and/or

· an amount of cash equal to the Cash NAV per Share attributable to the number of Shares so elected, being the Cash Option.

The default option under the Scheme is for Shareholders to receive New MNKS 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 MNKS Shares in respect of such holding.

Shareholders can make different Elections in respect of different parts of their holdings.

Overseas Shareholders should ensure they have read paragraph 15 of Part 4 of the Circular.

After allocating cash and other assets to the Liquidation Pool to meet all known and unknown liabilities of the Company and other contingencies there shall be appropriated to the Cash Pool and the Rollover Pool the remaining assets of the Company in the manner described in detail in paragraph 3.2 of Part 4 of the Circular. Such appropriation includes the application of a discount of 2 per cent. to the Residual Net Asset Value attributable to Shares which are elected to receive cash (the "Cash Option Discount"). The value arising from the application of the Cash Option Discount shall be allocated to the Rollover Pool for the benefit of Shareholders electing, or who are deemed to have elected, for the Rollover Option.

The issue of New MNKS 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 in detail in Part 4 of the Circular. The Calculation Date for determining the value of the Rollover Pool under the Scheme is expected to be market close on 2 November 2022. The Record Date for the basis of determining Shareholders' entitlements under the Scheme is 6.00 p.m. on 31 October 2022.

Illustrative entitlements

For illustrative purposes only, had the Calculation Date been market close on 29 September 2022 and assuming that no Shareholders exercise their right to dissent from participation in the Scheme, after deduction of the pre-liquidation interim dividend of 9.0 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 423.838260 pence and the IIT FAV per Share would have been 441.137783 pence. The Cash NAV per Share and the IIT FAV per Share may be compared with the Company's share price and cum-income NAV per Share as at 29 September 2022 which, when adjusted on a pro forma basis for the deduction of the pre-liquidation interim dividend of 9.0 pence per Share, were 418.50 pence and 434.34 pence respectively.

The MNKS FAV per Share would have been 1,077.983705 pence which, for the Rollover Option, would have produced a conversion ratio of 0.409225 and, in aggregate, 10,620,790 New MNKS Shares would have been issued to Rollover Shareholders under the Scheme, representing approximately 4.62 per cent. of the issued ordinary share capital of the enlarged Monks immediately following completion of the Scheme. Monks, as enlarged, would also then have paid listing fees in relation to the listing of the New MNKS Shares and SDRT on the acquisition of the Rollover Pool equal to 0.19 pence per MNKS Share, which would have resulted in a cum-income NAV per MNKS Share of 1,077.80 pence.

Elections for the Cash Option

There is no limit on the amount of Shares which may be elected for the Cash Option. Shareholders are entitled to elect for the Cash Option in respect of their entire holdings of Shares. The Cash Option Discount of 2 per cent. to the Residual Net Asset Value attributable to Shares which are elected to receive cash will be applied.

It is expected that the Liquidators shall distribute Cash Entitlements (rounded down to the nearest penny) by 12 November 2022.

Costs of implementing the Scheme

The Company and Monks 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 £850,000 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 £100,000), and does not take account of any dealing costs which will be incurred by the Company in disposing of assets in order 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.

The fixed costs of the Proposals payable by Monks are expected to be approximately £600,000 inclusive of VAT which, for the purposes of this calculation, is assumed to be irrecoverable, where applicable. In addition, Monks will also incur listing fees in respect of the listing of the New Shares and SDRT based on the value and constitution of the Rollover Pool.

In the event that either Shareholders or MNKS Shareholders resolve not to proceed to implement the Scheme on the terms described in the Circular (including if either Shareholders or MNKS Shareholders do not approve any resolution required to implement the Scheme) then either the Company or Monks (whichever company resolves not to proceed to implement the Scheme) will bear the reasonable costs of both parties in connection with the Proposals, save to the extent that the other party's reasonable costs exceed £125,000 (exclusive of VAT).

In the event that both of the parties resolve not to proceed to implement the Scheme on the terms described in the Circular (including if both Shareholders and MNKS Shareholders do not approve any resolutions required to implement the Scheme) then each party will bear its own costs.

BGL has agreed to reduce the management fee payable by Monks in respect of the net assets transferred to Monks under the Scheme for the first 182 days following the completion of the Scheme. The financial value of this amount (which is estimated at approximately £171,000 based on the Company's NAV as at 3 October 2022 and assuming that no Shareholders exercise their right to dissent from participation in the Scheme and 50 per cent. of the Company's current issued Share capital is elected for the Cash Option) shall be for the benefit of the shareholders of the enlarged Monks, including those Shareholders who elect, or are deemed to have elected, for the Rollover Option. For the avoidance of doubt, this amount shall not be taken into account in the calculation of either the IIT FAV per Share or the MNKS FAV per Share.

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 MNKS Resolutions 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 MNKS Shares to the Official List and to trading on the Main Market, respectively; and

· the Directors and MNKS 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.

Dividend

The Board has announced a pre-liquidation interim dividend of 9.0 pence per Share which, subject to the Resolution to be proposed at the First General Meeting being passed, will be paid to Shareholders prior to the Effective Date. The ex-dividend date for the pre-liquidation interim dividend is 13 October 2022, with the record date being 14 October 2022.

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

General Meetings

The Proposals are conditional, inter alia, upon Shareholders' approval of the Resolutions to be proposed at the First General Meeting and the Second General Meeting. The First General Meeting will be held on 31 October 2022 at 9.30 a.m. and the Second General Meeting will be held on 8 November 2022 at 9.30 a.m. Both General Meetings will be held at the offices of Baillie Gifford & Co, Calton Square, 1 Greenside Row, Edinburgh EH1 3AN.

Further details of the Resolutions to be proposed at the General Meetings are set out 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 12,626,500 Shares, representing approximately 24.3 per cent. of the Company's issued share capital (excluding Shares held in treasury) as at 3 October 2022. The Directors intend to roll over their entire beneficial holdings of Shares into New MNKS Shares.

Expected timetable

This announcement does not contain all the information which is contained in the Circular and Shareholders should read the Circular in conjunction with the MNKS Prospectus and the MNKS KID before deciding what action to take in respect of the Proposals.

A copy of the Circular has been submitted to the Financial Conduct Authority and will be available for inspection at the National Storage Mechanism which is located at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website at www.independentinvestmenttrust.co.uk.

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