Policy Change & Tender Offer
Henderson Strata Investments PLC
22 December 2004
NOT FOR DISTRIBUTION IN OR INTO THE UNITED STATES, CANADA, AUSTRALIA, JAPAN OR
FRANCE
22 December 2004
HENDERSON STRATA INVESTMENTS PLC (the 'Company')
Circular in relation to change of investment policy and Tender Offer and
Matching Facility
Introduction
The Board of Henderson Strata Investments plc announces that it is posting to
shareholders details of proposals for a change of investment policy, a Tender
Offer and Matching Facility and various related matters.
Background to Proposals
The Annual Report which is also being posted to shareholders shows that the
recovery in the Company's investment performance has continued over the past
financial year, particularly in respect of that part of the portfolio invested
in the UK. However, the Directors have been aware of poor investor sentiment
towards investment in smaller companies across international markets, the
Company's current investment policy. This is despite the encouraging performance
in the UK, particularly over the last two years.
With this background and in the light of the forthcoming continuation vote, the
Board has reviewed proposals put forward by Henderson Global Investors Limited,
the Company's Manager. Letters of intent have been received from certain large
shareholders, representing 26.18% of the issued share capital, who support the
Proposals and expect to retain, in aggregate, in excess of three quarters of
their current shareholdings. The Board is now proposing a change of investment
policy, various changes to the continuation arrangements and a Tender Offer and
Matching Facility.
The Directors are aware that, with the change in investment policy, some
Shareholders and other investors may want to acquire Shares. The Directors also
believe that some Shareholders may wish to realise some, or all, of their
investment. They have accordingly reviewed the available options with the
Manager and the Company's other advisers.
The Directors have decided to recommend that a tender offer should be made,
under which up to 30% of the Company's issued share capital could be repurchased
by the Company. The Tender Offer is designed to enable those Shareholders who
wish to realise Shares in the Company to do so at a price which is close to
their fair realisable value, while at the same time ensuring that the interests
of the continuing Shareholders are not disadvantaged. The Tender Offer is
combined with a Matching Facility under which Shareholders who wish to increase
their holding may do so at the Repurchase Price, which is at an 8% discount to
Net Asset Value.
Furthermore, the Directors are recommending certain changes to the Company's
Articles of Association to facilitate the maintenance of the discount at a level
equivalent to, or lower than, 8% of Net Asset Value.
Change of investment policy
The Board is proposing that the Company's investment policy be changed from
capital growth from investment in a diversified portfolio of international
smaller companies to capital growth from investment in a portfolio of UK Micro
Cap investments, and that the Company should invest in UK listed companies with
a market capitalisation of £100 million or less at the time of initial
investment. As a result, the Company's portfolio will include investments in
companies that are part of the FTSE AIM, FTSE Fledgling and FTSE SmallCap
indices. The Company expects to sell an investment after it has become part of
the FTSE 250 Index (or has an equivalent market capitalisation).
Appeal of UK Micro Cap
The Manager believes that these ''smallest'' UK listed companies offer the best
potential to generate attractive returns to shareholders over the longer term.
Such companies have outperformed larger companies in share price terms over the
last ten years. This is illustrated by the returns of the FTSE Fledgling Index
(ex investment companies) over the last ten years, which includes all quoted
companies below the threshold for inclusion in the FTSE All-Share Index
(currently £61.38 million).
The table below shows the total returns over one, two, five and ten years for
both these indices and the FTSE SmallCap Index (ex investment companies), the
current benchmark of the Company, for completeness.
FTSE Fledgling FTSE All-Share FTSE SmallCap
1 year 24.39% 12.38% 12.66%
2 years 109.26% 35.39% 57.35%
5 years 116.96% -13.15% 5.19%
10 years 447.50%* 115.80% 112.40%
Source: Datastream 20/12/04. Total Return. All ex investment companies
*Not complete to 10 years - Index first calculated 30/12/1994
Since the launch of the Company in 1985, coverage of UK smaller companies by
analysts has
increased markedly, reducing the scope for discovering undervalued investment
opportunities which can generate significant returns for shareholders. The
Manager now believes that by refocusing on UK Micro Cap, where the increase of
analyst coverage has been less noticeable, the Company should be able to exploit
market inefficiencies and to seek out companies with the potential for high
rates of growth.
The investment approach adopted by the Manager will not change. The Manager will
continue to select individual stocks which have most or all of the following
characteristics:
• A strong business franchise
• A clear strategy for growth
• The capability to make significant profits
• Sound cash generation
• Strong management
• Reasonable valuation
Benchmark
Given the proposed change to the Company's investment objective, it is
appropriate that the Company change its benchmark. The new benchmark will be the
FTSE Fledgling Index (ex investment companies).
The FTSE Fledgling is an index created and managed by the FTSE Group, an
independent company that originated as a joint venture between the Financial
Times and the London Stock Exchange.
The FTSE Fledgling Index is made up of all those UK listed companies that are
not part of the FTSE All-Share, which is itself the aggregation of the FTSE 100,
FTSE 250 and FTSE SmallCap indices. The composition of the FTSE Fledgling is set
as a result of the annual review of the FTSE UK Series indices.
The Manager
Henderson Global Investors Limited, the Manager, is a leading international
investment management company. Its range of investment products and services
covers all major asset classes, including equities, government and corporate
bonds, property, private capital, hedge funds and portfolio management services.
Henderson Global Investors manages more than £68 billion (as at 30 June 2004)
across all asset classes and employs some 800 people around the world.
The Manager is one of the largest managers of investment trusts with 10
investment trusts and over £3 billion of investment trust funds under
management.
Proposed management team
Henderson has a three person team that specialises in UK smaller companies
investment. As at 20 December 2004 this team managed approximately £914 million
invested in UK smaller companies.
The portfolio of the Company invested in UK listed smaller companies has been
managed by this team, with Colin Hughes having primary responsibility for
investment decisions, since 2002. The performance is shown in the following
table:
3 months 6 months 1 year 2 years
Henderson Strata, UK investments +12.5% +10.0% +17.6% +63.8%
FTSE SmallCap Index (ex investment +8.1% +5.8% +8.5% +39.5%
companies)
Notes: The figures for the Company are shown taking into account actual dealing
costs but no other operational or management expenses.
Source: Company - the Manager; Index - Datastream
Date: 30.11.2004
Colin Hughes, who will continue to be responsible for managing the Company's
assets if the Proposals are implemented, joined Henderson to manage UK smaller
companies portfolios in 1998, having previously focused on UK equity, including
smaller companies, portfolio management at London Life and AMP Asset Management.
The other members of the team who specialise in UK smaller companies are Neil
Hermon and Theresa Wat. Neil is Head of the Henderson Pan European Smaller
Companies team and joined Henderson in 2002 from Morley, the fund management arm
of Aviva. Neil is a chartered accountant and has specialised in the analysis of
and investment in UK smaller companies since 1993. Neil manages The Henderson
Smaller Companies Investment Trust plc and the open ended UK Smaller Companies
Fund along with other UK smaller company mandates for institutional clients.
Theresa was part of the UK Smaller Companies team at Morley and joined Henderson
at the same time as Neil Hermon. She is a chartered accountant with seven years'
experience in managing investments in smaller companies.
New management arrangements
As the Proposals envisage a change of investment policy, the Board believes that
it is appropriate to amend the management fee arrangements.
Under the present arrangements which have been in effect since 1 November 2000,
the management fee has consisted of a base fee and a performance fee. The base
fee is currently 0.85% per annum on the first £200 million of funds under
management, 0.6% on the next £100 million and 0.4% thereafter. The performance
fee is calculated as 10% of the out-performance of the FTSE SmallCap (excluding
investment companies) Index plus a hurdle of 2%.
The new management fee arrangements will not include a performance fee. The base
fee will become 0.85% per annum of the first £100 million of net chargeable
assets (defined as total assets less current liabilities before deducting prior
charges and excludes the value of any investments in other collective investment
schemes managed by the Manager) and 0.5% of assets in excess of £100 million.
The base fee will be levied quarterly in arrear.
The termination arrangements will also change. At present the Manager's
appointment can be terminated by either party, with the Manager receiving the
equivalent of 12 months' fees in certain circumstances. Under the Proposals the
compensation payable to the Manager for termination of its appointment where the
Company appoints a replacement manager will be the equivalent of six months'
management fee. Compensation payable to the Manager in the case of a voluntary
winding-up of the Company will be three months' management fee unless a
voluntary winding-up follows within four months of a continuation vote
(scheduled for 2005 and every third year thereafter) not being approved at the
relevant AGM in which case no compensation will be payable.
At the same time as these proposed changes to the management agreement are
implemented the opportunity will be taken to update the terms of the investment
management agreement to reflect the many legal, regulatory and regulator changes
since the agreement was last updated in 1996. Other than in respect of the
management fee changes described above, none of the changes will be material.
Discount Control Mechanism
The Board believes that investors should be confident that the discount to Net
Asset Value at which the Shares trade will be maintained at as narrow a level as
is practical in the prevailing circumstances and at a level that at least
matches the level of the Tender Offer and Matching Facility. Accordingly the
Board proposes:
• a continuation vote at the Annual General Meeting to be held in 2008
and every three years thereafter, as described below
• a change to the Articles that will require the Board to introduce
proposals that enable Ordinary Shareholders to realise their holding at a
discount of 8% to the Net Asset Value if the average discount to the Net Asset
Value at which the Shares were quoted on the London Stock Exchange in the three
month period prior to the relevant date exceeded 8%. The first relevant date
will be the last day of the accounting year ending in 2006 and subsequent
relevant dates shall be the last day of the accounting year in every year
thereafter. At the same time the Directors are proposing to make a number of
amendments to the Articles to facilitate the holding of Shares in Treasury.
Shares that have been purchased by the Company can, since December 2003, be held
by the Company and not cancelled. These so-called ''Treasury Shares'' can be
sold, subject to the general restrictions on the issue of Shares, to meet future
demand. A maximum of 10% of the Shares can be held as Treasury Shares at any
time. The Directors intend to hold Shares that have been repurchased in the
market in Treasury if they consider this to be in the best interests of the
Company, for example to enable any future market demand for Shares to be met
quickly and effectively. Treasury Shares will not be sold unless the price
represents a premium to the net asset value per Share.
The changes will only be implemented if the continuation vote is approved and
the Share repurchase facility and the authority of the Directors to allot equity
securities is renewed at the Annual General Meeting. The authority to allot up
to a maximum of 5% of the issued share capital (at the time of the Annual
General Meeting) will apply to the aggregate of sales of Shares held in Treasury
and new issues of Shares.
The Board intends that, in aggregate, these measures, including the use of
Treasury Shares and the Share buy-back powers, should result in the discount to
Net Asset Value at which the Shares trade being maintained, as far as practical,
at or below 8%.
Continuation vote
The Articles currently provide for a continuation vote to be proposed at the
Annual General Meeting and every 10 years thereafter. The Board is conscious
that Shareholders may wish to have the option to determine whether the Company
is to continue on a periodic basis, notwithstanding that the discount is
maintained at a narrow level. Accordingly, the Board proposes that the Articles
be amended to provide that a continuation vote be proposed at the Annual General
Meeting and every 3 (rather than 10) years thereafter.
The changes to the Articles and the investment policy and the new management
arrangements (but not the Tender Offer and Matching Facility) are conditional on
the continuation vote being approved at the Annual General Meeting. If the vote
is not approved the Directors expect to bring forward proposals for the
voluntary liquidation of the Company, which would be subject to Shareholder
approval, within the following three months.
Gearing policy
The Articles limit the power of the Company to borrow up to two times the
Adjusted Capital and Reserves (as defined therein). The Company has no long term
borrowings but the Board has resolved that if the Board, in conjunction with the
Manager, believes the prospects justify borrowing to make further investments,
the Company will do so, subject to outstanding indebtedness not exceeding 20% of
Total Net Assets.
Dividend policy
The Directors propose to maintain the current policy of allocating expenses to
revenue. In light of this and the significant deficit in revenue reserves the
Directors do not expect that the Company will be in a position to declare a
dividend in the foreseeable future.
Board composition
After nearly twenty years on the Board, Stephen Burley intends to retire at the
Annual General Meeting and Edward Whitley intends to do so later next year. The
Board would like to take this opportunity to record the Company's thanks for
their long, loyal and much valued service to the Company. If the Proposals are
implemented, the Board envisages the appointment of at least one new director in
2005.
Tender Offer
The Directors have arranged for a Tender Offer to be made, subject to
Shareholder approval, for up to 30% of the Company's issued share capital at a
price designed to enable those Shareholders who wish to realise Shares in the
Company to do so at a price which is close to their fair realisable value, while
ensuring that the interests of continuing Shareholders are not disadvantaged.
Under the Tender Offer, Shareholders (other than certain Overseas Persons) will
be able to realise up to 30% of their holdings (their ''Basic Entitlement'').
Further, Shareholders will be able to tender additional Shares, but such tenders
will only be satisfied, on a pro rata basis, to the extent that other
Shareholders tender less than their Basic Entitlement. For the purpose of the
pro-rating, Share Plan Participants and PEP/ISA Participants will be treated in
the same way as Shareholders.
The Tender Offer is being made at a Repurchase Price that represents a discount
of 8% to the Net Asset Value per Share on the Calculation Date. For illustrative
purposes only and assuming the resolution to approve the Tender Offer is passed
by Shareholders, had the Repurchase Price been calculated as at 20 December 2004
(the latest practicable date before this announcement), the Repurchase Price
would have been 448.15p.
The Tender Offer is being made by Cazenove. Cazenove will, as principal,
purchase the Shares tendered by means of on-market purchases and, following the
completion of all those purchases, sell them to the Company or to purchasers
under the Matching Facility.
All Shares acquired by the Company will be cancelled. The repurchase of Shares
by the Company will be funded from the Company's cash resources and by the sale
of investments in the Company's portfolio.
The Tender Offer is subject to the approval of Shareholders by special
resolution. It is also subject to certain conditions. In addition, the Tender
Offer may be suspended or terminated in certain circumstances. These include, if
the Directors determine, based on the number of requests under the Tender Offer
that cannot be satisfied, that it is not realistic to expect the discount to be
maintained at below 8% for any reasonable length of time. In this event the
Directors expect to bring forward proposals for the voluntary liquidation of the
Company within the three months following the Annual General Meeting.
The Company's authority to repurchase Shares, which was granted at the last
Annual General
Meeting and is scheduled to be renewed at the Annual General Meeting, will
remain in force
unaffected by the Tender Offer.
The Directors have received letters of intent from certain large shareholders,
representing 26.18% of the issued share capital, who support the Proposals and
expect to retain, in aggregate, in excess of three quarters of their current
shareholdings.
Matching Facility
The Directors are aware that, with the change in investment policy, certain
Shareholders and Plan Participants may wish to increase their investment in the
Company and, accordingly, have reviewed the available options with the Manager
and the Company's other advisers.
The Directors have arranged for Cazenove to operate a Matching Facility
concurrently with the
Tender Offer. Under the Matching Facility, Shareholders and Plan Participants
(other than certain
Overseas Persons) who are, or whose nominee is, on the register of Shareholders
as at close of
business on 24 January 2005 will be able to purchase Shares at the Repurchase
Price to the extent that there are Shares available to be so purchased through
valid tenders under the Tender Offer.
Shares purchased by Cazenove under the Tender Offer will first be allocated to
this facility with any balance to be repurchased by the Company. To the extent
that more Shares are requested under the Matching Facility than are tendered
under the Tender Offer, such tendered Shares shall be allotted to Shareholders
pro rata to the number of Shares requested on each Shareholder's Purchase Form.
Plan Participants will be treated in the same way as Shareholders for the
purpose of such pro rating.
The Purchaser will also be responsible for the payment of commission of 1%
payable to Cazenove (subject to a minimum commission of £7.50 per transaction)
and stamp duty (or stamp duty reserve tax) of 0.5% on any Shares purchased
through the Matching Facility. The Matching Facility is conditional on the
Tender Offer proceeding. The Company will scale back any purchase instruction
under the Matching Facility where the fulfilment of the instruction would
otherwise result in any Shareholder or any person acting in concert with him
owning 30% or more of the issued share capital of the Company.
Portfolio management
The Board expects to fund any purchases by the Company under the Tender Offer
from cash
resources, including the realisation proceeds of investments, in particular from
overseas holdings.
A realignment of the UK portfolio to reflect the changed investment policy, if
approved, will
commence following the passing of the continuation vote at the Annual General
Meeting. It is
expected that the portfolio reorganisation will be completed within
approximately four months of the continuation vote being approved. The Board
anticipates maintaining such proceeds in cash or cash equivalents throughout the
period of the Tender Offer.
Expected Timetable
2005
Latest time and date for receipt of Form of Instruction 5.00 p.m. on 18 January
and Purchase Forms accompanied by cheques for the
consideration from Plan Participants
Latest time and date for receipt of Forms of Direction 5.00 p.m. on 18 January
for the Extraordinary General Meeting from Plan
Participants
Latest time and date for receipt of Tender Forms and 5.00 p.m. on 24 January
Purchase Forms accompanied by cheques for the
consideration from Shareholders
Record Date for Tender Offer and Matching Facility the close of business on 24 January
Latest time and date for receipt of Forms of Proxy for 2.00 p.m. on 25 January
the Extraordinary General Meeting
Extraordinary General Meeting 2.00 p.m. on 27 January
Calculation Date of Repurchase Price the close of business on 27 January
Result of Tender Offer and Matching Facility and by the close of business on 28 January
Repurchase Price announced
Settlement through CREST and despatch of cheques for By 2 February
the Tender Offer and Matching Facility
Latest time and date for receipt of Forms and Direction 5.00 p.m. on 4 February
for the Annual General Meeting from Plan Participants
Balance certificates in respect of unsold Shares and by 7 February
Shares acquired under the Matching Facility despatched
Latest time and date for receipt of Forms of Proxy for 2.00 p.m. on 8 February
the Annual General Meeting
Annual General Meeting 2.00 p.m. on 10 February
Enquiries
Richard Smith 0207 818 4368
Henderson Strata Investments plc
Jane Lewis 0207 818 6756
Henderson Global Investors
Henderson Global Investors Press Office 020 7818 4222
pressoffice@henderson.com
Angus Gordon Lennox 0207 588 2828
Cazenove & Co. Ltd
This information is provided by RNS
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