The boards of JPMorgan Global Growth & Income (JGGI) and Henderson International Income (HINT) have agreed terms for a merger of the two trusts under which it is proposed that HINT’s assets will be rolled into JGGI, with existing HINT shareholders receiving new JGGI shares in exchange. The announcement from the two trusts says that no cash option is being offered to HINT shareholders “in light of the strong rating and liquidity of JGGI’s shares, and the similarity of the investment strategies, with both companies offering exposure to global equities and an attractive level of income”.

JPMorgan Asset Management will continue to manage the enlarged JGGI in accordance with JGGI’s existing investment objective and policy and is making a significant contribution to the costs of the deal in the form of a fee waiver for an amount equal to the direct costs of the transaction incurred by both JGGI and HINT. HINT’s existing €30m fixed rate senior unsecured notes will transfer to JGGI in connection with the scheme.

If approved by shareholders, the merger will result in a trust with net assets of approximately £3.4bn, and an estimated ongoing charges ratio of 0.42% Both boards say that they believe the outlook for the enlarged JGGI remains compelling, stating that “JGGI provides investors with award-winning, global exposure employing a repeatable, style-agnostic investment approach that has delivered market leading performance under different market conditions and in both growth and value environments”. [QD comment – Matthew Read: Although there were no signs that this deal was on the table, the merger announcement doesn’t feel like much of a surprise given the fact that JGGI seems to be the merger partner of choice for funds with global income mandates – particularly given the scale JGGI has now achieved and the hefty reduction in the ongoing charges ratio the deal is expected to bring; the similarity of the existing mandates; and that this offers HINT shareholders a means to close the current c11% discount. Ordinarily, we would like to have seen HINT shareholders given the option of a cash exit in the event that they didn’t want to swap into JGGI. However, with JGGI consistently trading at a small premium, existing HINT shareholders who don’t want to remain invested would still be better off taking JGGI shares and selling them in the market, which suggests take up of a cash exit would likely be low and probably wouldn’t justify the increased legal costs offering this would incur.

Saba Capital announced that it had amassed a 5.2% stake in HINT on 16 January, which, given the timing of the merger proposal announcement, would not have been known by HINT or JGGI when they began discussions for the tie up. Saba will presumably be pleased as this probably gives it around a 14% uplift on its investment, which is not a bad result given that it’s only been invested for about three weeks. After the merger, we estimate that Saba’s stake in the enlarged JGGI will be around 0.5%-0.6%, without allowing for the fact that JGGI will likely continue to grow between now and when the merger with HINT completes.]

Benefits of the merger

JGGI and HINT’s boards both say that the merger is expected to result in substantial benefits for both sets of shareholders. They have listed these benefits as follows:

• Strong investment performance: JGGI has generated NAV total return per share of 22.4%, 49.2%, 116.0%, and 269.8% over the one, three, five and 10 years to 31 January 2025, which compares to HINT’s NAV total return per share of 9.6%, 17.8%, 43.0%, and 116.5% over the same period¹.
• Improved share rating: HINT’s shareholders would benefit from an immediate uplift in value of over 14% given the relative ratings of the two trusts, with JGGI trading on a premium of 2.1% (average of 0.9% over the last 12 months) and HINT on a discount of 10.8% (average of 12.1% over the last 12 months)¹.
• Scale: The Enlarged JGGI is expected to have net assets in excess of £3.4bn (on the basis of the companies’ respective net asset values as at 31 January 2025), further enhancing its position as the largest investment trust in the AIC Global Equity Income sector.
• Liquidity: The scale of the Enlarged JGGI should further improve secondary market liquidity for both groups of shareholders. The average daily volume in JGGI shares for the 12 months to 31 January 2025 was £6.5m, providing a significant enhancement to liquidity for HINT shareholders.
• Consistent dividends: JGGI’s dividend policy is to make quarterly distributions with the intention of paying dividends totalling at least 4% of its NAV per share as at the end of the preceding financial year funded by distributable reserves where necessary. This policy provides JPMAM with the flexibility to adapt the portfolio to meet different market environments, which aligns favourably with HINT’s recently enhanced investment and distribution policy. It has resulted in an annualised dividend growth rate of 7.2% since the start of the 2018 financial year, as compared to HINT’s annualised dividend growth rate of 6.4% over the same period.
• Contribution to costs: HINT and JGGI shareholders will be insulated from a significant proportion of the costs of the Transaction as a result of the JPMorgan Cost Contribution.
• Reduced management fee: HINT’s shareholders will benefit from significantly lower management fees as part of the Enlarged JGGI. The incremental management fee payable by the Enlarged JGGI will be 0.30% of NAV per annum, resulting in an expected blended management fee of 0.38% per annum on the Enlarged JGGI’s NAV, which compares to the existing HINT management fee of 0.575% of NAV.
• Lower ongoing charges: HINT and JGGI shareholders will benefit from an estimated annual ongoing charge of 0.42%, a significant reduction to HINT’s ongoing charge of 0.77%
• Combined shareholder base: There is significant overlap between HINT’s and JGGI’s top 20 shareholders, with over 85% of HINT’s shareholders also being shareholders of JGGI. This will allow shareholders the opportunity to consolidate their investments into a larger, more liquid investment trust.
• Track record of consolidating investment trusts: JGGI has an established track record of combining investment trusts. JGGI completed a merger with The Scottish Investment Trust plc in August 2022, JPMorgan Elect plc in December 2022 and JPMorgan Multi-Asset Growth & Income plc in March 2024.
• JGGI’s dividend policy unchanged

JGGI has a policy of paying an annual dividend to shareholders of at least 4% of NAV, supported by both income and capital returns which JPMAM believes provides flexibility to its portfolio management team to invest in the most attractive investment opportunities to maximise total returns. No changes are proposed to JGGI’s dividend policy as a result of the Scheme. As at 30 June 2024, JGGI had distributable reserves of £1.8bn which may be used to fund distributions to shareholders.

JGGI’s rating, share issuance and buybacks

Since 2017, JGGI shares have traded at an average premium to NAV of 1.3%, allowing it to issue over £670m of shares over the last three years through regular tap issuance and a placing in February 2024. In 2024, JGGI issued £440m of shares, representing approximately 50% of issuance across the entire investment company sector. JGGI is committed to its well-established, publicly-stated discount policy of repurchasing its shares with the aim of maintaining an average discount of around 5% or less calculated with debt at par value. The policy has resulted in JGGI repurchasing approximately £4.9m of shares during 2024 at an average discount of 2.3%, with such shares subsequently being reissued from Treasury at a premium to NAV.

Board structure

Following completion of the Transaction, it is expected that the Board of the enlarged JGGI will consist of seven directors, with six from the current board of JGGI and one director from the board of HINT. It is expected that the JGGI Board will revert to six directors with the director from the board of HINT stepping down within 12 months, following a transitionary period.

Timetable

It is intended that the documentation in connection with the Transaction will be posted to each of JGGI’s and HINT’s shareholders in April/May 2025 with a view to convening general meetings in May/June 2025. The Transaction is expected to conclude by July 2025.

Comments from Richard Hills, chair of Henderson International Income

“The board is delighted to propose the combination of Henderson International Income Trust and JPMorgan Global Growth & Income. The board believes that the proposed combination will provide shareholders with access to a larger, more liquid vehicle with an outstanding track record and a history of growing dividends whilst focusing on the most attractive investment opportunities. The combination will create a vehicle of significant scale with a highly competitive management fee. Having consulted a number of our largest shareholders who have indicated their support, we believe the combination is very attractive for shareholders as a whole.”

Comments from James Macpherson, chair of JPMorgan Global Growth & Income

“Investment trusts are in the spotlight at present, and there are growing calls from investors for consolidation, with the emphasis on the need for larger, more liquid vehicles that offer highly competitive cost structures. The proposed combination with Henderson International Income Trust provides synergies for both sets of shareholders, reinforcing the Company’s position as one of the industry’s largest investment companies, with enlarged net assets of £3.4 billion, and the fourth lowest ongoing charge²at 0.42% Added to that, JGGI’s long-term performance track record and sustainable dividend gives my fellow Directors and me great confidence in the team’s ability to navigate whatever challenges the future holds³ and we remain open to further consolidation opportunities.”