Reconstruction of Aberdeen UK Tracker (AUKT) and merger with Aberdeen Diversified Income & Growth (ADIG) (previously BlackRock Income Strategies – BIST)
The share prices of AUKT and ADIG both reacted positively yesterday (13.02.17) to further news on the merger. In the first place AUKT announced that the limit on being able to elect for cash (as opposed to taking shares in ADIG) is being raised from 40% to 60%. Under the original terms of the merger, AUKT shareholders can cash in at a discount to NAV of 2.75%; so effectively you can now sell 60% of your shares in the reconstruction at NAV less 2.75%. This compares to the current discount of c. 6%, which is based on a NAV of 365p and a bid price of 342.5p.
Further, both AUKT and ADIG announced that going forward the new company would have in place a discount control mechanism such that the company would buy back shares to try to prevent the discount to NAV being wider than 5%. The current discount of ADIG is c. 7%, based on NAV of 123p and a bid price of 114.25p. There will also be a continuation vote at the 2020 AGM and each year thereafter; this should also help keep the discount narrow. Some of the larger shareholders have been putting pressure on the boards to sweeten the terms a tad.
IpsoFacto Investor Portfolios
AUKT is held in our mainstream investment trust portfolio; ADIG (BIST) in our Income, Managed Income, Top Five Investment Trusts, and the Income Component of our Buy and Hold strategies. AUKT can be cashed out as we have said up to 60%; for ADIG the limit is 20% at a discount of 4% (less costs).
Subject to no further changes in the proposals, we would expect to tender (ie. cash out) the whole of our AUKT holding – albeit we may be scaled back by up to 40%. We will be recommending an alternative once the reconstruction is effective – expected now to be in early April.
As for ADIG, we will review the situation nearer the date but we are likely to cash out 100% in our Income portfolio and Top Five Investment Trusts (subject to scale back). We may cash out only 50% in the other portfolios.
Capital Gains Tax (CGT)
Investors who elect for the cash option and who hold their shares outside an ISA or SIPP will be subject to CGT on any gain arising – if their total gains exceed the annual exemption of £11,100. This may need to be watched carefully because it is uncertain at the moment into which tax year the transaction will fall – ie. 16/17 or 17/18. If you rollover your shares – or in the case of ADIG you don’t tender, then no CGT situation is triggered. Bear in mind AUKT shareholders will need to update their tax records.
As always if you do have any questions, please ask them using the Contact Page. We are here to help.
This research has been produced by David Liddell, chief executive and major shareholder in IpsoFacto investor.com Limited which has approved this research. David may have equity holdings in any or all of the stocks listed.
The information contained in this research has been obtained from sources that IpsoFacto investor.com Limited believes to be reliable and accurate. However, it has not been independently verified and no representation or warranty, express or implied, is made as to the accuracy or completeness of any information obtained from third parties.