IIT.L Regulatory News (IIT)

9 August 2022

The Independent Investment Trust plc

Legal Entity Identifier : 213800IYHGJTZJ3MO642

Proposed Combination with Monks Investment Trust plc

Introduction

The Board of The Independent Investment Trust plc (the "Company" or "IIT") is pleased to announce that it has agreed heads of terms with the Board of Monks Investment Trust plc ("Monks") in respect of a future combination with Monks to be effected by way of a scheme of reconstruction under Section 110 of the Insolvency Act 1986 and a voluntary winding up of the Company (the "Scheme"). IIT shareholders will be able to elect either to receive new ordinary shares issued by Monks and / or realise part, or all, of their holding for cash.

Background to the Scheme

Max Ward, the Company's Managing Director and full-time portfolio manager, recently informed the Board of IIT that he wished to retire from his role. Given the impact that Max's retirement would have on the Company, the Board carefully considered the various options available and decided that a combination with Monks offered the greatest benefit to IIT shareholders.

The Global Alpha team within Baillie Gifford, which took over the management of Monks in 2015, has a strong long term record, and the wide diversification of the portfolio, beyond the resources of IIT, is a feature which the Board of IIT considers attractive against an uncertain geopolitical background which may prove persistent. The scale of Monks, with assets of £2,495 million at 30 June 2022 and no dominant shareholders, allows for a liquid market in its shares.

Benefits of the Scheme to IIT Shareholders

The Board believes that the Scheme has a number of benefits for IIT shareholders:

· Ability to stay invested in a tax efficient manner: As part of the Scheme, IIT shareholders will have the option of a rollover into Monks without triggering capital gains tax.

· 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.

· Attractive look-through value for shareholders: Monks's shares currently trade at a tighter discount to their underlying net asset value when compared to IIT and thus provide an attractive look-through value for IIT shareholders.

· 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 will offer a cost contribution by way of a six month fee waiver based on the quantum of assets rolling over to 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 improving liquidity and aiding marketing.

Further details on the Scheme

The Scheme will be effected by way of a scheme of reconstruction under Section 110 of the Insolvency Act 1986, under which IIT shareholders will be able to elect either to receive new ordinary shares issued by Monks (the "Rollover Option") and / or realise part, or all, of their holding for cash (the "Cash Option").

The Scheme will be undertaken on a Formula Asset Value to Formula Asset Value ("FAV") basis. The FAV of IIT (the "IIT FAV") and the FAV of Monks (the "Monks FAV") for the purposes of the Scheme will be calculated in accordance with the respective company's normal accounting policies and take into account their own respective costs, with the exception of stamp duty and listing fees which will be paid by the enlarged Monks, and any dividends declared but not paid. The uplift in FAV delivered by the Cash Option will be for the benefit of the IIT rollover shareholders.

IIT shareholders who elect to realise all or part of their holding in the Company for cash will receive an amount in cash equal to the IIT FAV per share, less 2 per cent., multiplied by the number of IIT shares they own. For the avoidance of doubt, there will be no limit on the number of IIT Shares which may be elected for the Cash 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.

The directors of IIT, who own circa 24.3% of the company's equity, all intend to elect for the Rollover Option to the full extent of their holdings and will also recommend the resolutions which will be put to shareholders proposing the Scheme.

The Company will pay a pre-liquidation interim dividend to the extent required in order to maintain investment trust status.

Overview of Monks

Summary

Monks is a United Kingdom-based investment trust whose investment objective is to invest across the globe to achieve capital growth, which takes priority over income and dividends. This 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 - which Monks expects to hold for around five years on average. Investments are made on an unconstrained basis. The portfolio, which includes stocks with a range of different growth profiles, will typically contain 100+ stocks from around the world and Monks should not be viewed as a proxy for any index. As at 30 June 2022, Monks had total assets of £2,495 million.

Monks is managed by Baillie Gifford & Co, an independent fund management group, which has around £230 billion under management and advice.

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 policy and investment objective will not be amended in connection with the Scheme and the portfolio will continue to be managed by Spencer Adair, supported by Malcolm MacColl and Baillie Gifford's Global Alpha team.

Management fee and ongoing costs

The annual management fee is 0.45% on the first £750 million of total assets, 0.33% on the next £1 billion of total assets and 0.30% on the remaining total assets. The total ongoing charges ratio for the year to 30 April 2022 was 0.40%, down from 0.43% in the prior year.

Board Composition

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

Expected timetable

It is currently envisaged that a shareholder circular and notice of the general meeting setting out the details of the Scheme and seeking shareholder approval for the cash exit and liquidation will be sent to shareholders in late September 2022. The relevant general meetings are expected to be held in October 2022.

This announcement contains information that is inside information for the purposes of the Market Abuse Regulation (EU) No. 596/2014.