William Heathcoat Amory
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Updated 18 Sep 2024
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Disclaimer

Disclosure – Non-Independent Marketing Communication

This is a non-independent marketing communication commissioned by Alliance Witan (ALW). The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

This is an edited version of the shareholder circular. For full details please see the full announcement.

Witan (WTAN) has published a shareholder circular setting out the finer details for the combination with Alliance Trust (ATST). The proposal was first announced on 26/06/2024, with the two companies potentially forming Alliance Witan PLC. This would be achieved by means of a scheme of reconstruction and winding-up of Witan Investment Trust, subject to a shareholder vote.

Witan shareholders will be entitled to elect to receive in respect of some or all of their Ordinary Shares:

  1. New ATST Shares (the "Rollover Option"); and/or
  2. Cash (subject to an overall limit of 17.5% of the Ordinary Shares in issue, the "Cash Option").

The Cash Option will be offered at a discount of 2.5% to the WTAN NAV per Share as at the Calculation Date. Shareholders who make no election will be deemed to have elected for the default option, being the Rollover Option, in respect of their entire holding of Ordinary Shares.

The choice between the options available under the Transaction will be a matter for each Shareholder to decide and will be influenced by their investment objectives and by their personal, financial and tax circumstances. Accordingly, Ordinary Shareholders should, before making any Election, read carefully all the information in the Circular and in the ATST Prospectus, and take financial advice where required.

Background to and rationale for the Transaction

On 18/03/2024, WTAN announced that its long-standing CEO, Andrew Bell, had informed the Board that he intended to retire this year. As a consequence, the Board made the decision to conduct a comprehensive review of the Company's investment management arrangements and invited proposals for the future management of the Company's portfolio. A large number of very high-quality proposals were received, however the Board was unanimous in recommending a combination with ATST, allowing the continuation of WTAN’s current multi manager approach.  

The Board notes a number of attractions to a combination with ATST:

  • Best-in-class investment management: The enlarged portfolio will be invested in WTW's successful multi-manager strategy, providing access to best-in-class managers globally, many of whom are not otherwise readily accessible by UK retail investors. For more information on ATST, please see our most recent research note available here.  
  • Robust investment performance track record: Since the appointment of WTW as manager of ATST at the beginning of April 2017 to 30/08/2024, ATST's NAV total return was 102.2% against 101.7% for the benchmark. Over the past three years to the same date, its NAV total return was 23.1%, against 23.9% for the benchmark.
  • Attractive and progressive dividend policy: As at 06/09/2024, ATST's dividend yield was 2.25%. ATST intends to increase its third and fourth interim dividends for the financial year ending 31/12/2024 so that they are commensurate with WTAN’s first interim dividend payment of 1.51p per Ordinary Share. Furthermore, it is expected that ATST's dividend for the financial year ending 31/12/2025 will be increased compared with the prior financial year so that a WTAN shareholder who rolls over into ATST will continue to see a progression in their income in both 2024 and 2025.
  • Greater scale and prospect of FTSE 100 inclusion: ATST is expected to have net assets of c. £4.8bn on completion of the transaction. The enlarged ATST may also be eligible for inclusion in the FTSE 100 Index in due course and should benefit from improved profile, which should help to attract new investors to the enlarged ATST, and secondary market liquidity.
  • Lower management fees: WTW has agreed a new management fee structure for the enlarged ATST which will result in a more competitive blended fee rate.
  • Lower ongoing charges: The new management fee structure and the economies of scale which the combination will bring is expected to allow the enlarged ATST to target an ongoing charges ratio in the high 50s (in basis points terms) in future financial years, an improvement on both the Company's and ATST's current ongoing charge ratios, which are 76bps and 62bps, respectively.
  • Significant contribution to costs from WTW, meaning that WTAN shareholders who roll over into ATST are expected to suffer minimal or no dilution, depending upon the level of take-up of the Cash Option.
  • Improved rating: Over the three-year period to 06/09/2024, ATST Shares traded at an average 5.6% discount to their underlying NAV, compared with the WTAN’s shares which traded at an average 8.2% discount to NAV.
  • Liquidity opportunity: WTAN shareholders have the opportunity to elect for a cash exit at a price close to NAV for some or all of their holding.

Cash Option

Shareholders may elect to receive cash instead of New ATST Shares in respect of some or all of their holdings of WTAN Shares. The maximum number of Ordinary Shares that can be elected for the Cash Option is 17.5% of the total number of Ordinary Shares. WTAN  shareholders are entitled to elect for the Cash Option in respect of more than 17.5% of their individual holdings of Ordinary Shares, but if aggregate elections have been made which exceed 17.5%, then applications in excess of the basic entitlement will be scaled back pro rata among all WTAN shareholders who have made such excess applications.

WTAN dividends

The Board has announced a pre-liquidation dividend of 1.75p per share which will be paid to Ordinary Shareholders in lieu of a normal second interim dividend for the year ending 31/12/2024. Shareholders receiving New ATST Shares will rank fully for all dividends declared by ATST with a record date falling after the date of the issue of those New ATST Shares to them. Assuming the scheme becomes effective on or before the relevant record date (which is expected to be in late November 2024), shareholders rolling over into ATST will be entitled to receive ATST's third interim dividend for the year ending 31/12/2024, which is expected to be payable in late December 2024.

Elections

Elections must be received no later than 1.00 p.m. on 30/09/2024. The default option for WTAN shareholders is to receive New ATST Shares, meaning that if you wish to roll your entire holding into New ATST Shares, no elections are necessary.

Voting

Shareholders are encouraged to vote in favour of the Resolutions.  Before deciding what action to take however, WTAN shareholders should read carefully the information in the Circular and in the ATST Prospectus. All documentation relating to the proposed combination is available on Witan’s website. Ordinary Shareholders who are in any doubt as to the contents of the Circular or the ATST Prospectus or as to the action to be taken by them should consult their stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under FSMA without delay.

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