Manager exodus prompts Henderson European to merge with Fidelity peer
Henderson European (HET ) is set to combine with the Fidelity European (FEV ) investment trust months after its lead managers’ unexpected resignation.
If approved, the merger will swell Fidelity European’s assets to £2.1bn, pushing even further ahead of its peers in the six-strong peer group, where all other trusts are sitting below £600m.
If HET shareholders choose to decline the rollover into FEV, they can opt for a cash exit of up to 33.3% of share capital, at a 1.75% discount to net asset value (NAV). HET shares jumped 3.3% on the news, while FEV shares were off 0.4%.
The newly enlarged vehicle will continue to be managed by Fidelity’s Sam Morse and Marcel Stötzel in accordance with the trust’s existing investment objective and policy.
An update from HET today specified that an enhanced discount policy will be introduced, aiming to keep any discount within mid-single digits through buybacks in normal market conditions.
There will also be a reduction in management fees reflecting the greater scale of the combined business. Fees will be charged at 0.70% a year up to £400m, 0.65% up to £1.4bn, and 0.55% above £1.4bn of net assets.
Additionally, Fidelity has said it will make a significant contribution to the costs of the merger, equivalent to a waiver of 12 months of management fees with an expected value of about £2.4m based on current transaction assumptions and full take-up of the cash exit.
The proposals are still subject to approval from shareholders from both sides, with general meetings expected in September, but the board of HET said it has received ‘indications of support representing 33% of share capital’.
Both boards are also in discussions with holders of HET’s privately placed loan notes to agree their treatment in connection with the merger.
The announcement follows a comprehensive review of options for HET’s future triggered by the resignation of co-portfolio managers Tom O’Hara and Jamie Ross earlier this year.
HET chair Vicky Hastings said the board received a number of proposals over the review period, including from incumbent manager Janus Henderson.
In a similar set of circumstances, HET was itself the product of a merger last year, between Henderson European Focus and EuroTrust, after long-time European Focus manager John Bennett resigned.
FEV invests predominantly in European equities, focusing on dividend growth, but up to 20% of assets may be invested in companies outside of the continent. It is a strongly performing trust in its sector, beating the average share price total return for its peer group, according to the Association of Investment Companies, over one, three and five years.
Year-to-date, shareholder returns of 15.2% have outperformed the MSCI Europe by 4%.
Winterflood Securities head of research Emma Bird said the merger ‘makes good sense’.
‘HET shareholders will benefit from significantly increased scale, with associated improved secondary market liquidity and lower ongoing costs, further enhanced by the reduction in management fee,’ she said.
‘FEV shareholders will also benefit from increased scale and reduced ongoing charges, with Fidelity’s cost contribution ensuring there is no dilution. We also view it as best practice that HET shareholders are being offered a cash exit.’
Peel Hunt analyst Anthony Leatham said ‘the consolidation across the sector continues’.
‘Since the beginning of 2023, we have counted over 60 mergers, acquisitions, or wind-up and realisation transactions or proposals, with the universe, excluding real estate, having shrunk from 310 to 250,’ he said.
Prior to the announcement, FEV was trading at 3% discount to NAV and HET at 8%.
