Twentyfour trust gets go ahead for £700m merger with UK Mortgages

Twentyfour Income Fund (TFIF) has been given the green light for its merger with UK Mortgages (UKML).

UKML shareholders approved the union of the two trusts, both managed by Twentyfour Asset Management, at an extraordinary general meeting held on Friday.

The combined strategy is expected to have a market capitalisation over £700m.

With the resolution passed, it is expected the transaction will complete, with new TFIF shares being issued in the week commencing 28 March.

Consequently, trading in UKML shares has been suspended and its advisers have notified the London Stock Exchange to cancel admission of shares by the end of the month.

The merger had been touted as attractive for UKML shareholders. Though the £137.4m trust was well-received by UK intermediaries when it launched in 2015, performance-wise it didn’t shoot the lights out and was trading on an 8% discount leading up to the merger announcement.

However, Stifel criticised TFIF for not giving shareholders an opportunity to vote on the transaction, especially following the “missteps” that occurred around a previous bid by M&G for UKML in August 2020.

Questions have also been raised about whether there is a natural overlap between the two portfolios, given TFIF’s significant weighting in CLO and UKML’s exposure to residual tranches of UK RMBS transactions.

Twentyfour has said the combined investment company will benefit from a strengthened market position due to greater scale and its combined in-house investment and securitisation expertise.

Eleven investment professionals will work on the trust, including partners Rob Ford and Doug Charleston, who were also named managers on TFIF and UKML.

A further announcement setting out the final scheme entitlements is expected on 23 March, which will outline the acquisition value per UKML share, the TFIF issue price and number of new TFIF shares to be issued.

Shares in TFIF are currently trading on a slight discount of 1.1%, according to data from the Association of Investment Companies.

The trust has delivered top quartile returns over five years, data from Trustnet shows, but over the last year returns have been poorer than UKML’s.

Share price total returns (%)

Source: Trustnet

See also: Twentyfour trust urged to let investors vote on £700m merger with UK Mortgages