Proposed merger of interests of HEFT and HNE

Henderson Eurotrust PLC

14 March 2024

 

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, IN ANY MEMBER STATE OF THE EEA 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.

This announcement contains information that is inside information for the purposes of Article 7 of the UK version of Regulation (EU) No. 596/2014 which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended (the "Market Abuse Regulation"). The person responsible for arranging for the release of this announcement on behalf of HEFT and HNE is Janus Henderson Secretarial Services UK Limited acting as corporate secretary.

14 March 2024

Henderson European Focus Trust plc ("HEFT")

Henderson EuroTrust plc ("HNE")

Proposed merger of interests of HEFT and HNE

Introduction

The boards of Henderson European Focus Trust plc ("HEFT") and Henderson EuroTrust plc ("HNE") are pleased to announce that both companies have signed Heads of Terms in respect of a proposed merger of interests to form Henderson European Trust plc (the "Combined Trust") - an enlarged, flagship European investment trust to be managed by the European equities team at Janus Henderson Investors ("Janus Henderson" or the "Manager") (the "Proposals").

The Proposals will be effected by way of a scheme of reconstruction and winding up of HNE under section 110 of the Insolvency Act 1986, and the associated transfer of HNE's assets to HEFT in exchange for the issue of new shares by HEFT ("New Shares") under the recommended scheme (the "Scheme").  The City Code on Takeovers and Mergers is not expected to apply to the Proposals.

The Proposals, which are recommended by both boards working with their respective advisers, will be subject to approval by both HEFT and HNE shareholders and are expected to result in the Combined Trust having net assets of circa £750 million (based on valuations as at 29 February 2024). The Combined Trust is also expected to be eligible for inclusion in the FTSE 250 Index. Shareholders representing 35.4% and 37.6% of the respective issued share capital of HEFT and HNE have indicated their intention to vote in favour of the recommended Proposals.

The Combined Trust will be co-managed by Tom O'Hara and Jamie Ross, currently co-lead and lead portfolio managers of HEFT and HNE respectively.  The Combined Trust will bring together their respective expertise and proven track records of benchmark outperformance under a single mandate: to maximise total return by investing in companies predominantly listed in Europe (excluding the UK). Its focus will be on Europe's "global champions" - large, established and well-managed businesses operating internationally but based in Europe. The Combined Trust expects to hold a concentrated list of stocks, selected with no particular style bias but with an emphasis on potential for long-term growth in the context of enduring global trends. 

The recommended Proposals have been structured to avoid any costs of change falling on continuing shareholders in the Combined Trust, and reduce the overall ongoing charges ratio of the continuing vehicle. This has been achieved through a contribution from the Manager when the recommended Proposals become effective and by a reduction and waiver of fees by the Manager to support the Scheme.

Benefits of the Proposals

The boards of HEFT and HNE believe that the Proposals will offer shareholders of the Combined Trust the following benefits:

·    A compelling investment case: The Combined Trust will provide shareholders with a flagship Europe ex UK equities proposition, seeking to maximise total return from a portfolio of Janus Henderson's assessment of Europe's biggest and best companies, selected according to long-standing global trends and with an emphasis on substantial, well-managed businesses, with sustainable business models.  

·    A "best ideas" approach: Both portfolio managers have their own distinct and proven expertise but share a fundamental investment philosophy. Working collaboratively from an enhanced knowledge base, and with the benefit of increased discussion throughout the stock picking process, it is expected that the Combined Trust will represent the very best ideas of both managers.

·    Demonstrable track record of strong performance: HEFT's NAV total return over three, five and ten years to 29 February 2024 has been 39.95%, 82.90%, and 160.54% respectively. Tom O'Hara has co-managed the portfolio since 2020.  HNE has been managed solely by Jamie Ross since 2019. Its NAV total return over three, five and ten years to 29 February 2024 has been 17.80%, 66.39% and 151.94% respectively.

·    Continuity of manager and excellent European equities team: The Combined Trust will be supported by Janus Henderson's award-winning European equities team which encompasses 11 team members and conducts around 1,300 company meetings a year.

·    Continuity of exposure: HEFT and HNE have over 50% of common holdings by value and the majority of the Combined Trust's portfolio is expected to comprise assets currently held by at least one of the companies. This complementarity of holdings and style will reduce the extent of any portfolio realignment required in connection with the Proposals.

·    Increased scale: As a result of the Proposals, the Combined Trust is anticipated to have net assets of circa £750 million (based on valuations as at 29 February 2024) and, assuming full take up of the cash exit opportunities (see 'Structure of the Proposals' below), would become the second largest investment company in the AIC European sector. It is also expected to be eligible for inclusion in the FTSE 250 Index. The enhanced scale of the Combined Trust should improve secondary market liquidity, as well as raise the profile and help marketability.

·    Reduced management fees for expanded assets: The Combined Trust will benefit from improved management fee terms, with management fees to be charged on the following basis:

§ 60 bps p.a. on net assets up to £500 million;

§ 50 bps p.a. on net assets between £500 million and £1 billion; and

§ 45 bps p.a. on net assets in excess of £1 billion.

This compares with the current structure of both HEFT and HNE of 65 bps p.a. on net assets up to £300 million and 55 bps p.a. on net assets in excess of £300 million.

·    Reduced OCR: The Proposals will reduce fixed costs proportionately and, along with the revised management fees, produce a competitive OCR estimated to be less than 0.70% compared to HEFT's current OCR of 0.80% and HNE's of 0.79%.

·    Contribution from Janus Henderson to the costs of the Proposals: Janus Henderson has committed to make a contribution to the costs of the Proposals, with a view to ensuring the Proposals are cost-neutral for continuing shareholders in the Combined Trust.

·    Discount / premium management policy: The Combined Trust will introduce a 5-yearly conditional performance related tender offer (detailed below) and will also use share buybacks and share issuance where appropriate and subject to prevailing market conditions.

·    Gearing: The Combined Trust also expects to deploy strategically both the longer-term structural and short-term gearing currently in place in HEFT, with the benefit of inexpensive long-term gearing of up to €35m over 25/30 years (weighted average cost of 1.57%).

·    Experienced board: The Combined Trust's board will include directors of both HEFT and HNE ensuring continuity and collective competence and experience.

Details of the Combined Trust

Subject to both sets of shareholders' approval of the Scheme, the following policies will be adopted by the Combined Trust (the "Company").

Investment Objective

The Company aims to maximise total return from a portfolio of stocks predominantly listed in Europe (excluding the UK).

Investment Policy

Asset allocation

The portfolio is predominantly invested in stocks listed in Europe (excluding the UK) and has a bias to larger capitalised companies but may, within limits, be invested in the stocks of mid and smaller capitalised companies or in companies listed elsewhere, including the UK.

Stock selection is not constrained by the benchmark and the stock weighting in the portfolio may be materially higher or lower than the weighting of any index used for performance comparisons, including in respect of geographical allocation.

Actual weightings of stocks held in the Company's portfolio are based upon the Manager's views of total return prospects.   

The Company has adopted the following limits:   

•             The portfolio will contain between 35 and 45 stocks.

•             European (excluding the UK) listed stocks will consist of not less than 80% of NAV at the time of investment.

•             The Company will not hold more than 10% of the share capital of any company at the time of investment.

•             The portfolio has a maximum single stock weighting of 10% of NAV of the portfolio at the time of investment.

•           Exposure to smaller companies (with a market capitalisation of less than €1 billion) is limited to 10% of NAV at the time of investment.

•             The portfolio is not constructed with a yield target.

Derivatives

The Company may use financial instruments, known as derivatives, for the purpose of investment and for efficient portfolio management for up to 10% of NAV at the time of entering into the contract.

Gearing

The Company can borrow with the aim of achieving a return that is greater than the cost of the borrowing. The Company can borrow up to 20% of NAV at the time the borrowing is assumed.

Other restrictions

It is the Company's policy to invest no more than 15% of its total assets in other listed closed-ended investment funds. Accordingly, the Company's shares are an eligible investment under Listing Rule 15.2.5(R) for other listed closed-ended investment funds.

Benchmark

FTSE World Europe (Ex UK) Index

Dividend Policy

The Company has a policy of paying interim and final dividends, with the aim of maintaining dividend levels and growing them when net income permits. Total return is the primary focus.

ESG Policy

The Company will continue to apply a responsible environmental, social and governance (ESG) policy to investing, an approach that HNE and HEFT shareholders are familiar with. The Company will operate within the parameters of JHI's ESG Investment Policy. This approach is consistent with investing in European companies with sustainable business models and good corporate governance.

Discount/Premium Management Policy

The board of the Combined Trust will monitor the premium/discount to NAV at which the shares trade and will consider the use of share issuance and/or buy-backs where appropriate and subject to prevailing market conditions.

A performance-related conditional tender offer will be made to shareholders for up to 25% of the Combined Trust's outstanding share capital (excluding treasury shares), at net asset value ("NAV") less costs and less a discount of 2% if, over the five years to 30 September 2029, the Company's NAV per share total return does not equal or exceed the total return of the benchmark on a cumulative basis. The NAV per share total return (calculated in accordance with the Company's normal accounting policies) will be adjusted to remove the impact on the tender offers themselves. If a tender offer was triggered, it would be subject to shareholder approval at the relevant time and legal and regulatory requirements.

The board of the Combined Trust

The board of the Combined Trust will comprise 7 directors drawn from HEFT and HNE. The board will provide an appropriate balance of experience and skills, and its composition will meet corporate governance guidelines. Succession planning and duration of service have also been taken into account in the formation of the Combined Trust board and it is expected that the size of the board will reduce to 5 directors over the next two years as those directors with the longest tenure step off the board.

The Chair of HEFT, Vicky Hastings, will remain as Chair of the Combined Trust. The other board members will be Robin Archibald, Marco Bianconi, Melanie Blake, Katya Thomson, Stephen King and Rutger Koopmans, with thanks to Nicola Ralston, Stephen Macklow-Smith and Stephen White for retiring from the boards if the Proposals become effective.

Structure of the Proposals

Dividends

As part of the Proposals, HNE intends to pay out substantially all of its net income before it enters into liquidation. HEFT intends to pay out an enlarged interim dividend prior to completion of the Scheme to ensure that its existing shareholders receive a dividend in line with HEFTs previous financial year of 4.35p per share and that the revenue reserves are protected.  This will likely require a smaller final dividend from the Combined Trust in respect of the financial year ending 30 September 2024, taking account the enlarged share capital following the completion of the Proposals, and the limited amount of time to earn income on assets transferred.  It is expected that the dividend cycle will be normalised for the financial year ending 30 September 2025.

HEFT's tender offer

Prior to the implementation of the Scheme, HEFT will put forward a tender offer to HEFT shareholders for up to 5% of issued share capital (the "Tender Offer"), which broadly reflects the cash exit being provided for HNE shareholders under the Scheme (see 'The Scheme' below).

The Tender Offer will be priced at a 2% discount to HEFT's formula asset value ("FAV") representing HEFT's NAV on an agreed calculation date in respect of the Tender Offer after adjusting for the costs of the Proposals agreed to be borne by HEFT, and less SDRT and any incidental fees and commissions specific to the Tender Offer.

The Scheme

The Proposals will be effected by way of a scheme of reconstruction of HNE under section 110 of the Insolvency Act 1986, resulting in the voluntary liquidation of HNE and transfer of assets to HEFT. The Proposals will be subject to regulatory and tax approvals and will also be subject to approval by the shareholders of each of HNE and HEFT. 

Under the Scheme, HNE shareholders will be entitled to elect to receive cash in respect of part or all of their shareholding, subject to an aggregate limit of 5% of HNE's issued share capital (excluding any treasury shares) (the "Cash Option"). Any HNE shares which are not either (i) validly elected under the Cash Option (including to the extent any elections for the Cash Option are scaled back as a result of the Cash Option being oversubscribed), or (ii) deemed to have been elected for the Cash Option, will be issued shares in the Combined Trust (the "Rollover Option").

The Cash Option for HNE shareholders will be priced at a 2% discount to HNE's FAV, representing HNE's NAV on an agreed calculation date in respect of the Scheme after establishment of a 'liquidation pool' sufficient to meet any contingent or unknown liabilities of HNE following its entry into liquidation and any outstanding known liabilities of HNE which includes an adjustment for the costs of the Proposals (the "Liquidation Pool").

HNE will remain responsible for the management of its portfolio up until the date upon which HNE is placed into liquidation pursuant to the Scheme. The portfolio managers of HEFT and HNE will work collaboratively to ensure an orderly transition of HNE's portfolio into a form that is appropriate for, and within the restrictions of, the Combined Trust's investment policy, in the period prior to such liquidation.

Costs and FAV adjustments

The FAV of each of HNE and HEFT will take into account the adjustments outlined below.

HEFT and HNE will each bear their own costs in relation to the Proposals, which will be reflected in the respective FAVs for each company. The benefit of the discount applied to the Tender Offer for HEFT will be credited to HEFT's FAV. The benefit of the discount applied under the Cash Option under the Scheme will be credited to HNE's FAV for those HNE shareholders taking the Rollover Option (the "HNE Rollover FAV").

Janus Henderson has committed to make a contribution to the costs of the Proposals, with a view to ensuring the Proposals are cost-neutral for shareholders in the Combined Trust only (i.e. not those participating in the Tender Offer or electing for the Cash Option). It is expected that this will fully offset both companies' costs to the extent not offset by the discounts on the Tender or the Cash Option. This contribution will be reflected on a pro rata basis in HEFT's FAV and the HNE Rollover FAV.

After making these adjustments the FAV per HEFT share will be equal to the HEFT FAV divided by HEFT's issued share capital (excluding treasury shares and excluding any HEFT shares which have been accepted for tender pursuant to the Tender Offer) (the "HEFT FAV per Share") and the rollover FAV per HNE share will be equal to the HNE rollover FAV divided by the number of HNE shares that have elected, or are deemed to have been elected, for the Rollover Option (the "HNE Rollover FAV per Share").

Each HNE share that elected, or is deemed to have been elected, for the Rollover Option will be entitled to receive new HEFT shares on the basis of the ratio of the HEFT FAV per Share divided by the HNE Rollover FAV per Share.

Expected timetable

It is currently envisaged that the documentation in connection with the Proposals will be sent to each company's shareholders by the end of May 2024 with a view to convening general meetings in June 2024. The Proposals are anticipated to conclude by the end of June 2024. 

The Chairs of HEFT and HNE commented:

"The Combined Trust brings together two investment trusts with excellent long-term performance and highly regarded portfolio managers. We strongly believe this combination will create a single company which stands to be much more than the sum of its parts: enhanced scale resulting in reduced ongoing charges and improved market liquidity; recognised investment prowess backed by deep resources within the European team at Janus Henderson; structured at no cost of combination to ongoing shareholders."

Dan Howe, Head of Investment Companies at Janus Henderson commented:

"We expect that this flagship investment trust, managed within our award-winning European team, will appeal to investors looking for exposure and performance from 'global champions' based in Europe, a region so often overlooked but that is home to many of the world's biggest, best and most-enduring companies."

For further information please contact:

Henderson European Focus Trust plc Vicky Hastings Chair of the Board	Contact via Company Secretary 020 7818 2220
Janus Henderson Investors, Manager Dan Howe Head of Investment Companies	020 7818 4458
Oliver Packard Head of Investment Trust Sales	0207 818 2690
Harriet Hall PR Director, Investment Trusts	020 7818 2919
Winterflood Securities, Corporate Broker Neil Morgan Innes Urquhart	020 3100 0292 020 3100 0265

Henderson EuroTrust plc Nicola Ralston Chairman	Contact via Company Secretary 020 7818 4082
Janus Henderson Investors, Manager Dan Howe Head of Investment Trusts	020 7818 4458
Oliver Packard Head of Investment Trust Sales	0207 818 2690
Harriet Hall PR Director, Investment Trusts	020 7818 2919
Deutsche Numis, Corporate Broker Nathan Brown Matt Goss	020 7260 1426 020 7260 1642

Notes

Legal Entity Identifiers:

HEFT: 213800GS89AL1DK3IN50

HNE:  213800DAFFNXRBWOEF12

Disclaimers

The information in this announcement is for background purposes only and does not purport to be full or complete. No reliance may be placed for any purpose on the information contained in this announcement or its accuracy or completeness. The material contained in this announcement is given as at the date of its publication (unless otherwise marked) and is subject to updating, revision and amendment. In particular, any proposals referred to herein are subject to revision and amendment.

The shares of the Company have not been, and will not be, registered under the U.S. Securities Act of 1933 (as amended) (the "Securities Act") or with any securities regulatory authority of any state or other jurisdiction of the United States, and may not be offered or sold in the United States or to, or for the account or benefit of, U.S. Persons absent registration or an exemption from registration under the Securities Act. Moreover, the shares of the Company have not been, nor will they be, registered under the applicable securities laws of Australia, Canada, Japan, New Zealand, the Republic of South Africa, or any member state of the EEA (other than any member state of the EEA where the shares are lawfully marketed). Further, the Company is not, and will not be, registered under the US Investment Company Act of 1940, as amended.

The value of shares and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements.  When you sell your investment you may get back less than you originally invested. Figures refer to past performance and past performance should not be considered a reliable indicator of future results. Returns may increase or decrease as a result of currency fluctuations.

This announcement may 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", "might", "will" or "should" or, in each case, their negative or other variations or similar expressions. All statements other than statements of historical facts included in this announcement, including, without limitation, those regarding the Company's financial position, strategy, plans, proposed acquisitions and objectives, are forward-looking statements.

Forward-looking statements are subject to risks and uncertainties and, accordingly, the Company's actual future financial results and operational performance may differ materially from the results and performance expressed in, or implied by, the statements. These forward-looking statements speak only as at the date of this announcement and cannot be relied upon as a guide to future performance. Subject to their respective legal and regulatory obligations, each of HEFT, HNE and Janus Henderson expressly disclaims any obligations or undertaking to update or revise any forward-looking statements contained herein to reflect any change in expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based unless required to do so by law or any appropriate regulatory authority, including FSMA, the Listing Rules, the Prospectus Regulation Rules, the Disclosure Guidance and Transparency Rules, the Prospectus Regulation and MAR.

None of HEFT, HNE or Janus Henderson, or any of their respective affiliates, accepts any responsibility or liability whatsoever for, or makes any representation or warranty, express or implied, as to this announcement, including the truth, accuracy or completeness of the information in this announcement (or whether any information has been omitted from the announcement) or any other information relating to them, whether written, oral or in a visual or electronic form, and howsoever transmitted or made available or for any loss howsoever arising from any use of the announcement or its contents or otherwise arising in connection therewith. Each of HEFT, HNE and Janus Henderson, and their respective affiliates, accordingly disclaim all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of this announcement or its contents or otherwise arising in connection therewith.

 

END