Henderson European Trust plc

On 14 March 2024, the Board of Directors of Henderson EuroTrust plc (the ‘Company’ or ‘HNE’) announced that it had reached heads of terms with Henderson European Focus Trust plc (‘HEFT’) on a combination of the two trusts which would form an enlarged, flagship, European investment trust (the ‘Combined Trust’). The Board announced updated and enhanced agreed terms of the proposed merger on 14 May 2024, following an unsolicited third-party approach to HNE, negotiations by the Board of HNE seeking to optimise the outcome for shareholders, and a consultation with certain major HNE shareholders who were unanimously supportive.

The Combined Trust is intended to be renamed Henderson European Trust plc and will be co-managed on a best ideas basis by the two existing fund managers of HEFT and HNE, Tom O’Hara and Jamie Ross.

The Combined Trust will be supported by Janus Henderson’s award-winning European Equities team and will focus on investing in Europe’s global champions, being large, established and well-managed businesses operating internationally but based in Europe.

In connection with the combination, it is worth noting that:

• the investment objective of the Combined Trust will differ from that of HNE (see part 5 of the circular), though it will pursue the broad investment objective of maximising total return from a portfolio of stocks listed in Europe; and
• the Company will offer a cash exit for up to 15% of HNE's issued shares in what is called the ‘cash option’ – see Questions 6 to 14 below.

The Boards of both trusts are recommending that shareholders support the combination and intend to vote their own shares in support of the proposed resolutions.

The original announcement of the combination and an announcement regarding an update to the terms can be found here:

Proposed merger of interests of HEFT and HNE - 14:00:00 14 Mar 2024 - HNE News article | London Stock Exchange
Merger Update - 18:25:00 14 May 2024 - HNE News article | London Stock Exchange

The combined and enlarged trust will provide shareholders with a flagship Europe (excluding UK) equities investment opportunity with a strong track record of performance. The increased size of the combined trust compared with each of HEFT and HNE is expected to improve liquidity in the secondary market and reduce the ongoing charges ratio. The Boards have negotiated a reduced management fee with Janus Henderson to achieve this.

Note: The ongoing charges ratio provides shareholders with an indication of the likely level of costs that will be incurred in operating and managing the Combined Trust.

The combination will be achieved through a scheme of reconstruction and subsequent liquidation of HNE (the ‘combination’ or ‘scheme’). New HEFT shares will be issued to HNE's existing shareholders who rollover their investment to the Combined Trust.

HNE has been advised that the exchange of shares in HNE for new HEFT shares for those shareholders electing to rollover their investment into the Combined Trust should constitute a scheme of reconstruction for the purposes of the UK taxation of chargeable gains, and that such exchange should not constitute a disposal of those shares in HNE for the purposes of the UK taxation of chargeable gains. However, shareholders should check with a financial adviser as individual circumstances may vary.

Like HNE, HEFT is a closed-end, HMRC approved investment trust which invests in mid-to-large cap companies in Europe. It is also managed by Janus Henderson Investors and the current portfolio manager is Tom O’Hara.

More information can be found on their website: Henderson European Focus Trust.

The Combined Trust will not qualify under Article 8 of the EU Sustainable Finance Disclosure Regulation. Certain investment restrictions implemented by HNE in order to promote environmental, social and governance (‘ESG’) characteristics, including climate change mitigation and health & wellbeing, are not included in the investment policy of the Combined Trust. However, the Combined Trust will continue to apply a responsible ESG policy to investing, an approach that shareholders in both HNE and HEFT are familiar with. The Combined Trust will operate within the parameters of the Investment Manager’s ESG investment policy. This approach is consistent with investing in European companies with sustainable business models and good corporate governance.

• All shareholders are entitled to vote at two separate general meetings and should submit their completed proxy forms ahead of the proxy deadlines:
  • First General Meeting
    to approve the combination
    Date: 20 June 2024
    Proxy deadline: 18 June 2024
  • Second General Meeting
    to approve the liquidation of the Company
    Date: 4 July 2024
    Proxy deadline: 2 July 2024
• All shareholders (even those who may object to the proposals) have the choice of participating in a cash option which will be capped at 15% of the Company’s issued share capital. Participating in this option is likely to trigger a liability to capital gains tax so shareholders should check with their financial adviser before returning the Form of Election (for shares held in certificated form) to the registrar or submitting a TTE instruction in CREST (for shares held electronically) by 27 June 2024.The cash option is conditional on shareholder approval at the two general meetings. It is also important to note that if aggregate elections are made for the cash option which exceed 15% of the issued shares, shareholders who have made an election for the cash option in excess of 15% of their individual holdings of shares will have those applications scaled back as set out in the circular dated 20 May 2024.

Shareholders should seek advice from an appropriately qualified financial adviser on the best option for their individual circumstances.

For each share, shareholders will be paid a price that is 2% below the HNE Cash Formula Asset Value (‘HNE Cash FAV’). The HNE Cash FAV (explained below), and therefore the exact price for the cash option will be confirmed on 4 July 2024.

The HNE Cash FAV will be at a 2% discount to a formula asset value, representing the proportion of the net asset value of the Company on 27 June 2024, adjusted for, amongst other things, the costs of the proposals to be borne by the Company, attributable to those shares in respect of which valid elections have been made for the cash option and divided by the number of shares validly elected for the cash option.

Note: The net asset value is the total value of the investments held by the trust minus any money it has to pay out (its liabilities). A useful explanation of the NAV can be found here. 

An investment trust is similar to other companies listed on the London Stock Exchange in that the market price of its shares is affected not only by the value of the assets the trust owns, but also by the level of supply and demand for shares in the market and market sentiment. As a result, the shares of an investment trust may trade at either a discount to NAV (where an individual share can be bought for less than the NAV) or at a premium to NAV (where an individual share can only be bought for more than the NAV).

Further information on the price and value of investment trusts and the difference between share price and NAV can be found here.

As at 16 May 2024 the shares of the Company were trading at a discount of approximately 10.8% to NAV. This means that, while the NAV at that time was 181.1.p, any share sold at that time would have attracted a price of approximately 161.50p.

The price being offered to shareholders under the cash option is 2% below the formula asset value on the agreed calculation date, but may be in excess of the market value of a share as at the transaction date. Please note that there can be no guarantee that the price offered to Shareholders under the cash option will be greater than the market value of a share as at the transaction date.

Shareholders will cover the costs of any realisation or realignment of HNE's portfolio prior to the effective date of the merger. A financial adviser will be able to help shareholders understand the calculations and work out how much money individual shareholders are likely to receive from participating in the cash option or electing to receive new HEFT shares.

The costs of the cash option, the combination and the liquidation attributable to the Company will be borne entirely by the Company rather than shareholders directly, and Janus Henderson has agreed to make a contribution to the costs of the proposals which is intended to benefit shareholders in the Combined Trust.

No, the cash option is conditional upon acceptance of the combination. If shareholders do not approve the combination, the Company will continue in its current form, although the directors may consider alternative options for the Company’s future.

Shareholders who do not elect for the cash option (or whose elections for the cash option are scaled back so that the maximum number of shares elected for the cash option is equal to 15%of the Company's issued share capital) will automatically be deemed to have elected to receive shares in the Combined Trust. Existing HNE shares will cease to trade on the London Stock Exchange on 4 July 2024 and shareholders will be allotted new HEFT shares which will be admitted to the London Stock Exchange on 5 July 2024. The ratio of HEFT shares allotted to HNE shares, is set out in the circular dated 20 May 2024.

However, even if you wish to receive new HEFT shares in respect of your entire holding of shares in the Company, you should still vote at the general meetings.

All shareholders are able to participate in the cash option. The cash option is conditional on shareholder approval at the two general meetings and elections may be scaled back as outlined in the circular.

Some shareholders may not be able to receive new HEFT shares due to where they are resident. These are likely to include residents or citizens outside of the UK who should read carefully the section titled ‘Excluded Shareholders’ in Part 2 of the circular 20 May 2024.

Where a shareholder is ineligible to participate in the rollover, they will be paid cash for all of their shares which are not subject to the cash option under a process which differs from that used for the cash option. This is explained more fully in the section titled ‘Excluded Shareholders’ in Part 2 of the circular dated 20 May 2024.

A financial adviser will be able to provide specific advice as to whether a shareholder is able to rollover their existing HNE shares for new HEFT shares and the consequences where a shareholder is ineligible for the rollover.

If shareholders accept the proposals, the Combined Trust intends to adopt a policy of paying interim and final dividends, with the aim of maintaining dividend levels and growing them when net income permits.

Shareholders should contact the Company’s registrar, Computershare at:
Telephone: 0370 707 1034
Email: web.enquiries@computershare.co.uk
Post: Computershare Investor Services, The Pavilions, Bridgewater Road, Bristol, BS99 6ZZ

Alternatively, you can contact Janus Henderson Investors at:
Email: support@janushenderson.com