12 Feb 2009 16:08
M&G High Income Investment Trust plc ("the Company")
This announcement and the information contained herein is not for publication, distribution or release in, or into, directly or indirectly, the United States, Canada, Australia or Japan and does not constitute, or form part of, an offer of securities for sale in or into the United States, Canada, Australia or Japan.
RECOMMENDED PROPOSALS FOR AN ISSUE OF NEW SHARES AND NEW UNITS IN CONNECTION
WITH THE SCHEME OF RECONSTRUCTION OF M&G RECOVERY INVESTMENT COMPANY LIMITED
Introduction
The Board has today published a Circular and Prospectus with details of recommended Proposals, announced in outline on 15 December 2008, for an issue of New Shares and New Units in connection with the reconstruction of M&G Recovery Investment Company Limited. Capitalised terms in this announcement have the same meaning as that set out in the Circular and or Prospectus of the Company, both dated 12 February 2008.
Under the Proposals, RIC Shareholders will be able to exchange their holdings of RIC Shares and RIC Package Units for New Shares and New Units in the Company.
The Proposals are similar to the recent reconstruction and winding-up of M&G Income Investment Company Limited in which the Company participated in October 2008. That transaction resulted in the Company issuing Shares and Units valued at £83.6 million.
The Proposals represent a significant opportunity for the Company to grow its assets in a transaction recommended by both the Board and the board of RIC. The Board believes that the Company will benefit from the greater liquidity in its Shares and Units and, in the case of its Income Shares and Capital Shares, lower proportionate fixed operating costs that would result from the Issue. There will be no change in the Company's investment style to accommodate the transaction.
The Board is also recommending the Buy-back Resolution, in order that the Company be able to purchase up to 14.99 per cent. of its issued share capital immediately after implementation of the Proposals (or, if the Proposals are not implemented, 14.99 per cent. of the issued share capital of each class at the date of the Extraordinary General Meeting).
The Proposals
The Proposals involve an issue of New Shares and New Units in consideration for the transfer of assets from RIC. In addition it is proposed that the Directors' general authority to allot Shares and disapply Shareholders' pre-emption rights be increased proportionately after the Proposals' implementation.
The Scheme
The Scheme involves a reconstruction of RIC under which it will be placed into members' voluntary liquidation. RIC Shareholders will be able to choose between maintaining an investment exposure to equities and some bonds through the New Shares and the New Units as set out in the options described below, and/or through shares in one or more open-ended investment companies also managed by the Manager, or receiving a cash payment.
Issue of New Shares and New Units to RIC Shareholders
The Company is making available new Zero Dividend Shares, new Package Units and new Income & Growth Units to RIC Shareholders under the Scheme. Both the Company and RIC are split capital investment companies.
RIC Shareholders are being offered a number of rollover choices for further investment, including a rollover into the Company. RIC Shareholders may choose to receive the following Shares or Units:
For RIC Ordinary Shares Income & Growth Units and/or Package Units For RIC Zero Dividend Shares Zero Dividend Shares and/or Package Units and/or Income & Growth Units For RIC Package Units Package Units and/or Income & Growth Units
The directors of RIC, M&G Investment Management Limited, as RIC's investment manager, and RIC's advisers reserve the right to determine in their absolute discretion that Elections and deemed Elections for Zero Dividend Shares or Income & Growth Units will be scaled back and deemed to be Elections for Package Units. This is necessary to ensure that the Company issues only equal numbers of each class of New Shares (whether as a New Share or part of a New Unit), in order to maintain the existing balance between the three classes of Shares as required under the Articles.
Winterflood Securities has agreed to use its reasonable endeavours to procure subscribers for new Income & Growth Units to match the demand in the rollover for new Zero Dividend Shares and therefore to limit any scaling-back that may be required as a result of RIC Zero Dividend Shareholders electing to receive new Zero Dividend Shares. New Income & Growth Units sourced by Winterflood Securities, if any, will be subscribed for at the same price as the new Income & Growth Units to be issued under the Scheme.
The New Shares and New Units in each class will rank pari passu with the existing Shares and Units of that class in issue. New Shareholders should note that the new Income Shares, issued as part of new Income & Growth Units and new Package Units, will not receive the Company's third interim and fourth interim dividends to be paid in respect of its financial year ending 31 May 2009. These dividends will be paid to Income Shareholders on the Register at the close of business on 27 March 2009. Sums due in respect of the Company's third interim dividend are payable on 22 May 2009 and sums due in respect of the Company's fourth interim dividend are payable on 25 August 2009.
Calculation of the Issue Prices of New Shares and New Units
The prices at which the New Shares and New Units will be issued by the Company to RIC Shareholders and any subscribers which Winterflood Securities has procured will be calculated on the Calculation Date.
The assets to be transferred in consideration for the issue of New Shares and the New Units to the RIC Shareholders will be valued on the Calculation Date in line with the current valuation policies of RIC. The RIC valuation policies are the same as the valuation policies of the Company.
New Zero Dividend Shares (other than when issued as part of new Package Units) will only be offered to holders of RIC Zero Dividend Shares. The Zero Dividend Issue Price will be the higher of (i) 59.55 pence representing the accrued entitlement of an existing Zero Dividend Share at the Calculation Date and (ii) a 5 per cent. discount to the average closing price of an existing Zero Dividend Share over the 10 dealing days immediately preceding the Calculation Date.
New Zero Dividend Shares issued under the Scheme will rank pari passu in all respects with the existing Zero Dividend Shares and therefore will be entitled to the Zero Dividend Final Entitlement of 122.83224 pence at 17 March 2017 (subject to there being sufficient assets then available).
New Package Units will be offered to holders of RIC Package Units, RIC Ordinary Shares and RIC Zero Dividend Shares. Package Units comprise one Capital Share, one Income Share and one Zero Dividend Share. The Package Unit Issue Price will be the net asset value of a Package Unit calculated as at 12 noon on the Calculation Date (deducting the Company's third and fourth interim dividends, both with a record date of 27 March 2009).
New Package Units will rank pari passu with existing Package Units. Holders of new Package Units issued under the Scheme should note that they will not be entitled to receive the Company's third and fourth interim dividends to be paid in respect of its financial year ending 31 May 2009.
New Income & Growth Units will be offered to holders of RIC Package Units, RIC Ordinary Shares and RIC Zero Dividend Shares as well as to subscribers procured by Winterflood Securities, if any. Income & Growth Units comprise one Capital Share and one Income Share. The Income & Growth Unit Issue Price will be an amount equal to the Package Unit Issue Price less the Zero Dividend Issue Price.
New Income & Growth Units will rank pari passu with existing Income & Growth Units. Holders of new Income & Growth Units issued under the Scheme should note that they will not be entitled to receive the Company's third and fourth interim dividends to be paid in respect of its financial year ending 31 May 2009.
Costs and expenses
The costs of the Proposals (including all advisers' fees, printing and other ancillary costs but excluding any stamp duty payable on the transfer of the assets from RIC to the Company) are expected to be approximately £580,000 (excluding VAT) which includes a variable element based on the value of the rollover. M&G Securities Limited, an affiliate of the Manager, has agreed to pay all of the costs incurred by the Company in connection with the Proposals in consideration of which the adjustments made to the calculation of the net assets of RIC in accordance with the Scheme will be payable by RIC to M&G Securities Limited. The Company will however pay stamp duty of 0.5 per cent. of the value of substantially all of the assets transferred from RIC, in the same way as it would have paid stamp duty if it had purchased those assets for cash.
Dividends
The Company will continue to make quarterly dividend payments on the Income Shares (including those Income Shares held in Package Units and in Income & Growth Units) in February, May, August and November each year. All dividends will be paid as interim dividends.
However, on the assumption that the Scheme is implemented, the Board intends to distribute substantially all of the revenue reserves of the Company held at 18 March 2009 for the benefit of Income Shareholders on the Register as at the close of business on 27 March 2009. As a consequence, the final interim dividend for the 2009 financial year, which in the absence of the Scheme would have been declared in July 2009, will now be split between a fourth and fifth interim dividend which together are anticipated to total 1.20 pence. The fourth interim dividend will be due to Income Shareholders on the Register as at 27 March 2009 and will represent substantially all of the revenue reserves of the Company at 18 March 2009, thereby protecting the revenue interests of existing Income Shareholders which would otherwise be diluted by the Proposals. This fourth interim dividend, which will be paid on 25 August 2009 to Income Shareholders on the Register at the close of business on 27 March 2009, is anticipated to be 1.00 penny per Income Share (including those held in Package Units and in Income & Growth Units). The fifth interim dividend will be paid from the income received by the Company in the remainder of the fourth quarter, 19 March 2009 to 31 May 2009. The fifth interim dividend shall be due to Income Shareholders on the Register as at 31 July 2009 and paid on 25 August 2009, the same day as the fourth interim dividend. It is anticipated that the fifth interim dividend will be 0.20 pence per Income Share (including those held in Package Units and in Income & Growth Units). Unexpected changes in either the timing or quantum of dividends expected to be received by the Company from its investments in the period to 18 March 2009 may change the balance between the fourth and fifth dividend.
In the financial year ending 31 May 2010, in the absence of unforeseen circumstances, the Directors expect to revert to the traditional pattern of three regular quarterly interim dividends followed by a larger fourth interim dividend. The outlook for dividends is uncertain but provided that the Directors consider revenue reserves and profits to be sufficient for the financial year ending 31 May 2010, the Directors would hope to declare ordinary dividends for the year of 5.80 pence.
The anticipated dividends set out above for the financial years ending 31 May 2009 and 31 May 2010 are estimates only, and are not to be taken as a forecast of profits or dividends.
Buy-back Resolution
At the Annual General Meeting, the Company was granted authority to buy back up to 8,027,000 Shares of each class, making a maximum number of 8,027,000 Package Units. Since this authority was granted, the issued share capital of the Company has increased pursuant to the issue of Shares and Units on 4 November 2008 in connection with the M&G Income Scheme, and will increase further if the Proposals are implemented.
The resolution seeks to increase the buy-back authority so that it will apply to up to 14.99 per cent. of the Shares of each class in issue immediately after implementation of the Proposals (or, if the Proposals are not implemented, 14.99 per cent. of the Shares of each class in issue as at the date of the Extraordinary General Meeting).
The Board believes that the ability to repurchase Shares may assist in the management of discount volatility and will therefore continue, at its absolute discretion, to buy back Shares in the market for cancellation if it is considered to be in Shareholders' interests. The minimum repurchase price would be 3 pence per Package Unit and, in accordance with the Listing Rules, the maximum repurchase price would be the highest of: (i) an amount equal to 105 per cent. of the average of the middle-market quotations for a Package Unit as derived from the Official List for the five business days immediately preceding the day on which that Package Unit is purchased; (ii) the price of the last independent trade in the Package Units; and (iii) the highest then-current independent bid for the Package Units on the London Stock Exchange. The Board may only authorise repurchases at prices representing a discount to net asset value per Package Unit which would have the effect of enhancing the net asset value per remaining Package Unit.
A copy of the Circular and Prospectus will be submitted shortly to the UK Listing Authority and will be available for inspection at the UK Listing Authority's Document Viewing Facility, which is situated at:
The Financial Services Authority
25 The North ColonnadeCanary WharfLondon E14 5HSEnquiries:
Robert Peel, Winterflood Securities 020 3100 0291
Robin Archibald, Winterflood Securities 020 3100 0290
Jonathan McClelland, Company Secretary 0207 548 3027
This announcement should not be construed as advice relating to legal, taxation or any other matters and does not constitute a recommendation to sell or the solicitation of an offer to subscribe for or buy, nor shall there be any sale of, any securities in any jurisdiction in which such offer, solicitation or sale would be unlawful or would impose any unfulfilled registration, publication or approval requirements on the Company or Winterflood Securities Limited.
The contents of this announcement include statements that are, or may be deemed to be "forward looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms " believes", "estimates", "anticipates", "expects", "intends", "may", "will" or " should". By their nature, forward looking statements involve risks and uncertainties and readers are cautioned that any such forward-looking statements are not guarantees of future performance. The Company's actual results and performance may differ materially from the impression created by the forward-looking statements. The Company undertake no obligation to publicly update or revise forward-looking statements, except as may be required by applicable law and regulation (including the Listing Rules). No statement in this announcement is intended to be a profit forecast. Investors should consult a professional adviser as to the suitability of the Proposals for the investor concerned.
M & G HIGH INCOME INVESTMENT TRUST PLC