Managers of Abrdn Smaller Companies Income (ASCI ) are revamping their portfolio ahead of a merger with Shires Income (SHRS ).

On Tuesday the two trusts issued prospectuses and circulars relating to the proposed merger, which was first announced on 26 July. The documents said the deal is expected to complete by 1 December, with new shares created by 4 December. 

Investors who elect to take shares in Shires will receive them at a 0.8% premium to the net asset value (NAV) per share, which is expected to be above the market price as shares are trading at a 9.8% discount. Those who elect to receive cash will do so at a 1.5% discount.

According to the announcement the board of ASCI has instructed the managers, Abby Glennie and Amanda Yeaman, to ‘consider the potential realignment’ of the portfolio so that is suitable to transfer to Shires and will have sufficient cash.  

This process is already underway, and the group said that since the end of July merger announcement ASCI has repaid and closed its £5m revolving credit facility, which was £2m drawn at the end of June, and sold some of its illiquid holdings.

A ‘material proportion’ of the portfolio is expected to move over to Shires, which is currently getting its small cap exposure through its holding in ASCI, where it is the largest owner with 13.6% of shares. The boards expect Shires will have 20% small cap exposure on an ongoing basis after the merger completes.

ASCI has seen its discount narrow substantially since the announcement of the merger proposal, when it stood at 17%. The £56m trust currently has a 3.4% discount.

The boards of both companies previously outlined the benefits of the move including an increase in dividends and a reduction in charges for ASCI shareholders.

William Hemmings, head of closed-end funds at Abrdn said he supported the ‘sensible consolidation’ of the two small funds and added Shires will ‘continue to offer private investors an attractive income and good liquidity in its shares’.

The £93m Shires trust, which is run by Iain Pyle and Charles Luke, is currently trading on a 9.8% discount.

Shires shareholders will vote on the merger at a meeting on 20 November, while ASCI shareholders have two meetings and votes to get through, one on 20 November and one on 1 December.