Scottish Investment Trust plans to combine assets with JPMorgan’s Global Growth & Income (JGGI) arm, creating an enlarged company with net assets in excess of £1.2bn.
The investment management firm said the merger would represent “the most compelling outcome” for its shareholders.
The deal, expected to conclude in Q1 of next year, will see the Scottish Investment Trust voluntarily liquidated via a scheme of reconstruction, creating an enlarged JGGI.
According to results of a review into the merger published today (October 20), which began back in June, the transaction will see Scottish Investment Trust shareholders own shares in JGGI on a formula asset value basis.
These will be calculated using the net asset values of each company, and adjusted for their respective allocations of costs.
Scottish Investment Trust shareholders are expected to benefit from “an immediate re-rating” of their investment on completion of the transaction.
The firm justified this by citing JGGI’s share price on market close of October 18, which were valued at a 2.7 per cent premium to net asset value, compared to Scottish Investment Trust’s shares, which were trading at an average discount to net asset value of 10.4 per cent in the three months preceding the June review announcement.
JP Morgan has agreed to make a contribution to the costs of the transaction, an amount which Scottish Investment Trust said will be equivalent to eight months' of management fees payable by the enlarged vehicle.
Scottish Investment Trust’s pension scheme and its wholly-owned subsidiary, SIT Savings, will not transfer to JGGI.
“It is anticipated that members of the defined benefit pension scheme, which has been closed to new members since 2015, will have their benefits under the pension scheme fully secured through a buy-in and buy-out with an insurer,” the investment management firm said. “Sufficient capital shall remain with the liquidator to ensure that this can be achieved,” it added.
As part of the liquidation process, Scottish Investment Trust’s Albyn Place office in Edinburgh will be sold and its SIT Savings liquidated, according to the review. Any excess of funds after liabilities are settled will return to Scottish Investment Trust.
JGGI’s board’s chairman Nigel Wightman is set to retire on October 27, which will see the enlarged JGGI led by his successor Tristan Hillgarth.
JP Morgan will be appointed Scottish Investment Trust’s alternative investment fund manager by mid-January 2022 in order to complete the transaction. During this transitional period, JP Morgan will be entitled to receive a management fee payable by Scottish Investment Trust quarterly at a rate equivalent to 0.55 per cent per annum on net assets.
James Will, Scottish Investment Trust’s chairman, put the decision down to JGGI’s “style-agnostic total return approach”, “index-beating performance”, and “attractive level of dividend to investors”.
JGGI consists of a portfolio of 50-90 stocks. Its construction is driven by bottom-up stock selection and underpinned by research as opposed to geographical or sector allocation.