Fidelity Japan will be open to bids for a potential merger from other investment trusts if its upcoming continuation vote is approved, according to a stock exchange announcement this morning (17 April).
It received a merger proposal from AVI Japan Opportunities earlier this month but has since been met with “a small number of unsolicited and credible indicative proposals from outside parties”.
The board will therefore “invite formal proposals to be made privately” from the other interested parties if it passes its continuation vote on 21 May, which it “does not expect to be approved by a majority of shareholders”.
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AVI Japan Opportunities chair Norman Crighton said liquidating the trust was a poor decision and that Fidelity Japan would benefit more by merging with another portfolio.
“We were disappointed to read in Fidelity Japan’s final results statements that the board recommends a continuation of the status quo, with no liquidity offered until 2028, instead of engaging in constructive dialogue regarding our proposal, which we believe is in the best interests of all shareholders,” he said.
A merger between the two trusts would results in a larger vehicle, with both having combined assets under management of £401m, as well as a lower discount. Shares in AVI Japan Opportunities are trading at a 2.4% discount versus 9.1% for Fidelity Japan.
It could also benefit from AVI’s better performance, which was up 43.7% over the past three years whilst Fidelity Japan made a loss of 4.1%.
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Other trusts have seen this potential in Fidelity Japan, hence the invitation for further bid offers from other Japan managers.
It said: “The focus of the board will be on those parties who are able to demonstrate a current record of managing Japanese equities in an existing London listed investment company structure. This process will include an invitation to AVI Japan Opportunity Trust.”
James Carthew, head of investment company research at QuotedData, said a potential merger had been on the cards for a long time following Fidelity Japan’s underperformance and widening discount.
“We had already suggested that JPMorgan Japan would be a good fit for Fidelity Japan, but this makes equal sense,” he added. “AVI Japan Opportunity’s track record and prospects mean that it deserves to be much bigger than it is.”