The chair of one of the City’s leading listed investment trusts has said the company is not “in play” after abandoning a £5.3 billion merger with a peer.
Mike Bane, who leads HICL Infrastructure, has insisted the company will continue as a standalone entity after investor opposition scuppered its proposed merger with The Renewables Infrastructure Group (Trig).
HICL Infrastructure and Trig said on Monday that they had abandoned plans for a merger that would have created Britain’s largest infrastructure investment trust. The announcement prompted speculation from analysts that bidders may seek to acquire HICL as its shares rose 3¾p, or 3.4 per cent, to close at 117p.
Bane said: “All boards have an obligation to look at any approach that they receive from anybody. That’s an absolute requirement. If someone comes along with a deal or a better deal you are absolutely bound to consider whether it is in the best interests of shareholders. But we are going to be focused on what we can do well.
“Almost all shareholders I’ve spoken to are very supportive of our approach, our execution and our ability to deliver value for shareholders. HICL is not in play as a result of this. If people want to come up with an offer then they are always in a position to do that.”
HICL has been under pressure to address the discounts its shares have been trading at compared with the net asset value of its investments in infrastructure assets such as water companies, motorways and hospitals. The group’s discount stood at 24 per cent before the merger was disclosed, Peel Hunt said.
Analysts at Jefferies, Stifel, and Winterflood said the collapsed deal would prompt bid interest in HICL.
They said: “We are left intrigued by what this might mean for both companies going forward, with the boards having made it clear they are open to potentially transformative transactions, given the dynamics at play across the sector and the transactions to have already completed this year.”
The board of HICL said it could not move forward without broad backing from shareholders after concerns were raised by at least 12 institutional investors with £21 million in HICL shares, including M&G, the fund manager, Border to Coast, the council pension schemes group, the wealth manager City Asset Management and Capital Gearing.
Trig expressed regret that investors would not be able to vote on the proposed combination. “Not progressing with the combination in no way diminishes Trig’s standalone strategy,” it said.
Both trusts have seen their share prices trading at a substantial discount to their net asset values and had been seeking to address this with the merger to create a firm with net assets worth more than £5.3 billion. Trig was trading at a discount of 34 per cent before the deal proposal was announced, according to Peel Hunt.
Yet, shareholders in HICL pushed back against the deal because it would expose them to Trig’s higher-risk renewables portfolio. CG Asset Management (CGAM) published an open letter with other signatories outlining its opposition to the deal, and set up a dedicated website called “Concerned HICL Shareholders” to garner support from retail investors. CGAM’s campaign website led to around 200 retail investors getting in touch with the asset manager to voice their opposition and the group wrote a letter to the board of the company to state their case.
Chris Clothier, co-chief investment officer at CGAM, said: “We are really pleased that the board of HICL have decided to withdraw the proposed merger with TRIG.”
CGAM and the small shareholders were ultimately supported by M&G, an investor with a stake of 3.4 per cent, bringing the total percentage of dissenting shareholders to around 13 per cent of HICL’s issued share capital.
Analysts at Winterflood Securities, the trading firm, said Trig invested in an “entirely different asset class” to HICL, and that many investors in HICL were opposed to an “unwanted repositioning” of their investments through the combination.
HICL’s shareholders also faced a “transfer of value” to Trig because its renewables portfolio has become subject to a wider trading discount.
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Trig has invested in green energy projects such as the Hornsea One wind farm in the North Sea, the Four Burrows solar park in Cornwall and the Drax battery storage site in Selby, North Yorkshire.
Bane told The Times that the boards and their advisers had considered a reworking of the deal to appease the concerns raised by opponents, but said: “We were unable to do something that was satisfactory and appropriate within the resources of the company.”
Deal advisers, including the banking trio of Goldman Sachs, Investec and BNP Paribas, had been hoping to share in a fee pot worth up to £35 million, but Bane said only a “small fraction” of the fees would be paid given the collapse of deal talks.
Bane said: “We think it was appropriate to test this deal and our initial soundings were very positive.
“It’s very hard to predict the outcome of a vote, there are lots of different factors that are in play, but ultimately, after recognising that there were a lot of people who were very much in favour of the deal, we didn’t think we could get to a substantial majority. It’s not that we knew that before.”
Analysts at Jefferies said that finding alternative merger partners may be a “priority” for the boards of HICL and Trig as they seek to find another way to address their discounted market valuations.
Iain Scouller, an analyst at Stifel, said: “This situation may flush out any bidders who had been running a ruler over either company.” He added: “If any potential bidders are now looking to take advantage of the vacuum that now arises following the abandonment of the merger, they are likely to reveal their hand fairly quickly.”
Bane said: “One of the things we’ve heard loud and clear in the shareholder consultation process is that they really like HICL’s existing strategy. They have a high degree of confidence in it and HICL as a standalone company, executing on its current strategy, is a highly attractive proposition.
“The purpose of this deal was to try to accelerate that but I am entirely confident that shareholders will be happy with us executing on our existing strategy.”