Update to tender offer proposal

RNS Number : 1518P

Artemis Alpha Trust PLC

15 October 2021

 

Artemis Alpha Trust plc (the 'Company')   

Legal Entity Identifier: 549300MQXY2QXEIL3756

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION (EU) NO 596/2014 ("MAR") WHICH IS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018.     UPON PUBLICATION OF THIS ANNOUNCEMENT, THE INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN FOR THE PURPOSES OF MAR.

Summary

Following consultation with its largest shareholders and its independent advisors, the Board of Artemis Alpha Trust PLC is seeking shareholder approval for a revised approach to managing the discount and liquidity of the Company on a continuing basis.

In concluding its strategic review in 2018, the Board stated its intention to propose to shareholders a tender offer for 25 per cent of the issued shares at or around the time of the October 2021 AGM and every three years thereafter, subject to the level of discount prevailing at the time. Owing to changing circumstances, the Board is instead committing itself to a sustainable share buyback policy with the target of maintaining a narrow discount, similar to the tender price. Since this represents a change of policy, the Board is offering shareholders the opportunity to vote on the suspension of the proposed 2021 tender offer. This vote only relates to the 2021 tender offer and the next tender offer is due to take place in 2024.

Over the last three years, the value of the Company's unquoted holdings, as a proportion of the whole, has fallen significantly, with proceeds reallocated into a more focussed and liquid listed equity portfolio. The Company has also seen a significant improvement in performance since 2018, and it is clear from consulting our largest shareholders that some of them are unlikely to participate in the tender. Given these factors, together with the substantial fixed costs that a tender offer would incur for shareholders, the Board has concluded that the 2021 tender offer is no longer in the best interests of all shareholders.

Duncan Budge, Chairman of Artemis Alpha Trust, said: "When we devised the proposed tender, the Company was in a fundamentally different position from that which it has managed to achieve today. Through the action of the Manager, the liquidity of the portfolio has been transformed, performance has substantially improved and the Trust's popularity and size has grown. We feel the option is now available to manage our discount and provide liquidity through a continuous share repurchase programme that would not compromise the management of the portfolio and would deliver better results for most shareholders overall than a tender in 2021.''

Kartik Kumar, Co-Manager of Artemis Alpha Trust, said: "Since 2018 we have worked hard at delivering a better outcome for shareholders. Our objective is to generate long-term outperformance and for the vehicle to be regarded as an attractive long-term savings vehicle by investors. Liquidity is paramount to achieving this, and so we are taking steps to create a stronger alignment between trading in our shares and the portfolio's underlying liquidity."

Share Buyback Policy

The Board's proposal for a more dynamic share buyback policy has the following features:

· A target buyback volume of up to 25 per cent of the shares currently in issue over the three years to the AGM in 2024. The buyback volume is a target and will depend on the trading price of the Company's shares, since the Company will not repurchase shares at a premium to net asset value.

· Share buybacks will target a discount level at the previously intended tender price, which would be set at 3% discount to net asset value, and take account of the additional estimated costs of the tender. Although the costs of the tender offer will inevitably vary depending on the percentage of shares tendered, the Directors estimate that this is likely to result in a tender offer at a discount of between 4% and 5% to net asset value. The current share price as at 08 October 2021 was at a discount of 3.9% to the net asset value per share.

· The Board has carefully considered whether it should implement a discount policy with explicit and absolute parameters, in particular a fixed discount target price, and has decided that whilst it is committed to use buybacks to maintain a narrow discount, including in adverse markets, it is more effective to maintain some flexibility. This approach will be reviewed regularly and the operation of the buyback overall will be reported and discussed in the Company's annual report each year.

· The Board wishes to make clear that it remains its intention to offer shareholders at the time of the 2024 AGM the opportunity of a 25% tender offer.

For the avoidance of any doubt, the Board may choose to continue to utilise share buy backs beyond the initial targets if it believes it is in the interests of shareholders as a whole.

The Board is prepared for the possibility that demand for the share buyback may be higher than usual in the coming weeks and months as investors who might otherwise have tendered their shares seek to sell or reduce their holdings and will use its current authority to buy back 14.99% of shares and, if necessary, refresh these powers in order to meet this possible demand.

Share Issuance

The Board also believes that implementing the share buyback programme outlined above increases the likelihood that the Company's shares will trade at close to or above asset value in time. The Board believes that there is a benefit to shareholders in growing the capital base of the Company, as it will help to mitigate the effects of fixed costs and improve the Company's natural secondary market liquidity. Shares bought back may therefore be held in treasury to facilitate efficient reissuance. For the avoidance of doubt, the Board does not propose to reissue treasury shares or issue new shares at a discount to net asset value.

Advisory Vote

The Board is aware that the above proposals amount to a material change to the Board's previously stated policy on discount management and liquidity.

It has therefore decided to put its new strategy proposal to shareholders for their consideration. It is recommending an advisory vote to approve the suspension of the previously proposed tender offer in 2021. This will give shareholders the opportunity to vote on the new proposal, whilst avoiding the majority of cost in preparing the requisite shareholder circular to implement the previous strategy, should it prove unnecessary. This will be proposed as an ordinary resolution requiring a simple majority.

Should a majority of shareholders vote against the resolution for the 2021 tender to be suspended, the Board will bring forward a tender offer as soon as is practicable. For the avoidance of any doubt, the advisory vote only relates to the tender offer in 2021. The Board still intends to propose a tender offer every three years, with the next tender offer scheduled to occur in 2024.

The circular will be published shortly with the vote taking place at a general meeting expected to be held in November 2021.

Background to the Proposals

In April 2018, following a period of weak investment performance, the Board conducted a strategic review, which concluded that the investment policy should be amended and a triennial tender should be put in place, subject to the price and discount prevailing at the time (amongst other changes).

In 2018, the triennial tender was the appropriate mechanism for providing shareholder liquidity as the underlying portfolio was not well-suited to delivering more frequent or continuing liquidity for investors.

Since the strategic review, the portfolio has undergone significant change:

	April 2018	September 2021
Net asset value	£137.5m	£160m
Discount	17%	4%
Number of holdings	86	25
Unquoted holdings	23%	6%
Liquid holdings	29%	79%
3 year NAV total return performance	23.9% (vs. 16.3% for FTSE All Share)*	22.4% (vs. 9.5% for FTSE All Share)*
3 year Share price total return performance	29.5% (vs. 16.3% for FTSE All Share)*	42.9% (vs. 9.5% for FTSE All Share)*

*Source: Morningstar

The liquidity profile of the underlying portfolio has improved significantly and the Company has grown - a combination of market growth and stronger relative performance. The discount has narrowed substantially. The Company has delivered on the objectives of the review and the Board is appreciative of Artemis' significant efforts in implementing these objectives.

During the later stages of 2020 and over the course of 2021 the Board has authorised a share buyback programme that has resulted in 5.9% of the company's shares being repurchased, with a narrowing of the discount since the launch of the buyback programme on 11 November 2020 from 18.1% to 4.2%. This has provided the Board with the evidence and comfort that a more dynamic share buyback approach will not interfere with the Investment Manager's ability to run the portfolio and can materially assist with discount control.

The Board, in consultation with its independent advisers, has observed that periodic tender offers may not provide the most reliable means of controlling the Company's discount or increasing the liquidity in its shares over time. It is concerned that the 2021 tender offer may in fact concentrate the discount protection and liquidity in the period immediately preceding it. Such circumstances can leave shareholders in a position where they feel they must, or ought to, tender shares in order to take advantage of the tender price and liquidity when it is available, even though they may not necessarily wish to reduce their investment exposure at the relevant time.

In turn, such behaviour might shrink the Company's market capitalisation more than necessary and might lead to further reductions in liquidity for investors, higher expense ratios and a risk of the Company becoming too small to appeal to the broadest range of investors. These factors can aggravate the very concerns the 2018 strategic review and its proposal for a tender offer this year were designed to address.

The Board believes that a dynamic use of share buybacks over the next three years will be a better option than offering a fixed single liquidity event such as the 2021 tender offer. It will provide shareholders with more predictable liquidity and a more stable discount than a triennial tender offer can achieve.

For further information, please contact:

Artemis Fund Managers Limited

Company Secretary

Telephone: [phone]

Singer Capital Markets

Corporate Broker

Alan Ray, Robert Peel, James Fischer (Investment Banking)

Sam Greatrex, Alan Geeves, James Waterlow, Paul Glover (Sales)

Telephone: [phone]

15 October 2021

 

END

 

 

MSCGPGWUUUPGGQC