Witan Investment Trust is to buy back its 15.8 per cent stake held by Aviva Investors Global Services, at a 6.5 per cent discount to the net asset value.
The £1.5bn trust announced it will repurchase 31.6m shares from Aviva’s subsidiary, Friends Life.
These shares make up 15.8 per cent of the issued share capital of Witan.
The agreement is subject to approval from shareholders following a general meeting on the 26 May.
It is not clear how Witan plans to fund the buy back.
In March, the trust had a total net asset value return of 6.4 per cent through 2015, increasing its dividend to 17p.
Witan issued issued a circular to shareholders giving further details of the background to the proposed transaction.
According to the circular, seen by FTAdviser, Aviva decided to review its large holdings in investment trusts on a longer term basis because it had not previously invested for the long-term.
“The board believes repurchasing shares [...] is in shareholders’ best interests because there should be an uplift in NAV per share from the company acquiring shares at a discount to NAV,” the letter from Witan chairman Harry Henderson reads.
According to the Witan board, the removal of a significant shareholder wishing to sell should improve the balance between sellers and buyers in the market, potentially allowing an improvement in the discount level afterwards.
The letter also makes it clear other investors will have an opportunity to buy shares on the same terms.
Patrick Connolly, certified financial planner at Chase de Vere, said he suspected the move was part of a strategic decision from Aviva as it reviews its entire investment portfolio.
“It looks beneficial for Witan not to have one shareholder that owns so much of the trust, because it means there is not a dominant shareholder that has such influence when it comes to voting decisions.
“It’s likely we’ll see wealth managers and institutional investors buy the shares rather than individual investors, because individual investors can buy this trust now at a similar discount anyway.”
katherine.denham@ft.com
