M&G Investment Management is attempting to take over a specialist home loans investment trust which is trading at a 30 per cent discount following the coronavirus crisis.
Stock exchange filings show M&G has already made several approaches to the board of UK Mortgages, a debt-focused investment trust, with a view to take over the company — all of which have been rejected.
The latest offer, made last Wednesday but published today (July 20), proposed a cash buyout at 67p per share and valued the company at about £183m.
According to M&G, this represented a 21 per cent premium to the UK Mortgages share price as at July 17, was 29 per cent more than the one-month average price and 36 per cent up on the three-month average.
M&G published the proposals so the board can “begin a dialogue” with shareholders now they have access to the details of M&G’s offers.
This comes after the board of the £152m UK Mortgages trust has rejected all proposals to date and declined to enter into discussions which might allow an acquisition to proceed.
However, UK Mortgages' share price jumped 12 per cent on the news of M&G's repeated offers.
The board of the UK Mortgages trust issued its own announcement today, simply noting that M&G now had until 5pm on August 17 to either announce a firm intention to make an offer or declare it did not intend to make such a bid.
M&G said: “M&G believes that the underlying assets held by UK Mortgages are complementary to those held by the fund and will enable it to further build on its track record in acquiring and managing very similar assets in a private setting and is supported by the long-term capital of the fund it manages.
“However, [it] has reached a critical juncture in its development. It has consistently struggled to deliver the returns and dividend levels targeted at its initial public offering in 2015.”
Run by Twentyfour Asset Management, the UK Mortgages trust had been trading at a premium until the beginning of 2019.
But the 15 per cent discount the trust had been trading at throughout 2019 widened to 57 per cent when markets tumbled in March this year due to the pandemic, only narrowing to 30 per cent as at end of play on Friday (July 17).
It has lost 28 per cent in share price terms over the past three years, compared to an AIC sector average of -14.3 per cent, as it struggled amid the pandemic due to falling interest rates and a turbulent credit market.
In June, the company missed its minimum dividend target of 1.125p per share, only offering 0.375p for both Q1 and Q2 of 2020. It had paid out 4.5p per share in 2016 and 2017.
M&G said it was clear the company continued to experience “significant headwinds” and it was unlikely the trust would achieve an equivalent valuation for its shareholders, adding the all-cash offer provided the opportunity for shareholders to exit their investment “despite the illiquidity” of UK Mortgages shares.