John Laing Infrastructure Fund's (JLIF) board has recommended shareholders accept a takeover offer by institutional investors Dalmore Capital and Equitix Investment Management. They are offering 142.5p a share with a dividend of 3.57p for the six-month period ended 30 June 2018 – in total 146.07p a share. These are the terms they had originally suggested in July.
The offer represents a 23.6 per cent premium to the closing price per share of 118.2p on 13 July 2018, the last trading day before discussions were publicly announced. And it is a premium of 19.8 per cent to John Laing Infrastructure's latest net asset value (NAV) per share of 121.9p on 31 March 2018. It also represents a total return to shareholders since the trust’s initial public offering in November 2010 of 101 per cent or 9.6 per cent a year, which is above the trust’s annual target return of 7 per cent to 8 per cent.
At close on 6 August, the first day of trading following the board's recommendation of the offer, the trust's share price was 144.8p and on a 18.9 per cent premium to NAV, according to Winterflood Securities.
The trust's board has agreed to the offer following increased share price volatility sparked by the threat of nationalisation and windfall taxes from a potential Labour government, and the collapse of Carillion earlier this year which provided facilities management for some of the projects the trust invests in. As a result, John Laing Infrastructure began trading at a discount to NAV limiting the potential for equity issuance. So finance for future investments would have come from the trust's credit facility or selling assets.
"With respect to acquisition opportunities, the UK continues to be a particularly competitive market with an oversupply of capital seeking to be deployed and an undersupply of projects in which to invest," said the trust's board. "This has caused prices of UK private finance initiative (PFI) and public private partnership (PPP) project assets to increase to a level where it is increasingly challenging for John Laing Infrastructure to transact and generate a satisfactory economic return."
The board said the trust could continue to deliver sustainable cash flows to shareholders and generate upside but added: "[This offer] provides shareholders with good and certain value today that is in excess of the reasonable medium-term prospects for John Laing Infrastructure on a standalone basis.
John Laing Infrastructure Fund's board had initially rejected an unsolicited offer from the bidders on 26 June. But following negotiations and a due diligence process, it believes the current offer – an increase on the original – is "fair and reasonable".
Analysts at broker Liberum said: "This is an excellent result for shareholders following a difficult 12-month period for the shares."
The offer needs to be approved by 75 per cent of shareholders to go ahead but Baillie Gifford, the second-largest shareholder in the trust with 6.4 per cent of shares, said: "We are not yet fully convinced that the proposed bid offers best value for all shareholders and we continue to engage with the board."
However, analysts at broker Numis Securities believe "that most shareholders will be happy to accept the terms which represent a significant uplift to the share price prior to the offer being announced. We estimate that at least 15 per cent of the share register is now owned by value investors/arbitrageurs who have acquired stock in the past few weeks in anticipation of the offer going through."
If shareholders agree to the offer it is likely to complete in October.
