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Threadneedle UK Select Trust to merge into Henderson High Income

Threadneedle UK Select Trust to merge into Henderson High Income

The £52.3 million Threadneedle UK Select Trust (UKT) is to be merged into the £260.7 million Henderson High Income Trust (HHI).

The board of UKT said in a statement that it decided that the company is unable to continue because of its uneconomic size. The merger is subject to shareholder and regulatory approval.

The UKT is currently trading on an 8.4% discount, and has a dividend yield of 2.3%. For the past 12 months however, the shares have been trading at an average discount of 13%. Over three years the average discount was 8.7%.

Although the discount has been problematic, UKT's performance has been strong. It has returned 19.5% in NAV terms over one year and 31.1% over three years, compared to the UK All Companies sector average of 17.2% and 26.2%, respectively.

Meanwhile, HHI has returned 16.6% and 30.3% over one and three years versus the UK Equity & Bond Income sector return of 18% and 25% respectively.

The board said that because of the size of the trust, it is unable to take measures to manage the discount ‘without adversely affecting the viability of the company’.

Under the terms of the merger, UKT will be reconstructed and wound up, while shareholders will have the option to receive either cash distributions or roll over into HHI.

Henderson proposed a contribution to the costs that equates to 18 months of its base management fee, 0.5% per annum, of the total assets that roll over.

The board estimates that the costs of the proposed merger borne by UKT shareholders will be approximately 0.5% of its NAV, which excludes the liquidator's retention and any portfolio disposal costs.

The details will be sent to shareholders in May with the merger expected to become effective in June.

 UKT chairman David Warr said: ‘Having undertaken a thorough review of the options available to the company, we are pleased to be able to recommend a merger with Henderson High Income Trust. 

‘Whilst the board has been satisfied with the investment performance of the company over recent years, we recognise the importance for shareholders of scale and liquidity for their investment and the appeal of an investment in a successor trust that offers an attractive dividend yield and a premium to NAV.’

Margaret Littlejohns, chairman of HHI, added: 'The board of Henderson High Income Trust is delighted to be supporting this transaction. We believe that our long term track record of delivering regular high income and capital growth over time from a portfolio predominantly invested in UK equities will be a compelling rollover opportunity for Threadneedle UK Select shareholders.’

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