Both of these businesses are listed investment companies (LICs) managed by PM Capital.
PGF and PAF merger
The two LICs have entered into an agreement to merge. PAF shareholders will be offered PGF shares as consideration.
The number of PGF shares proposed to be exchanged will be based on PAF’s net tangible assets (NTA) per share, divided by PGF’s NTA per share on the date the merger becomes effective. The NTA represents the underlying value of a business – the assets less liabilities.
According to PM Capital, the implied offer value based on the most recently published NTAs as at 10 September 2021 represents a 23.8% premium to PAF’s closing price immediately prior to this announcement.
The PAF board committee, which was created to consider this merger, has recommended the merger subject to an independent expert agreeing it’s in the best interest of shareholders and there are no better offers.
The scheme meeting date for shareholders to be aware of is 9 December 2021.
What are some of the benefits for PAF shareholders?
PM Capital referred to some of the benefits of being part of a larger group.
The portfolio’s pre-tax net asset value of the merged entity would be $712 million, compared to PAF’s $67 million. Market liquidity would be 10x that of PAF (compared to the past 12 months). There would also be a much higher number of shareholders on the register.
There is also the potential benefit of capital tax rollover relief, subject to individual shareholder circumstances.
What are the benefits for PGF shareholders?
The following benefits also apply to the future shareholders from PAF as well.
The increased size would lead to a reduction of fixed costs relative to the investment returns, increasing the return per share generated by the portfolio.
PM Capital also said there would no increase in aggregate investment management costs, there would be increased liquidity and increased market awareness and following by brokers, researchers, researchers, financial planners and prospective investors.
This seems like a good deal for PAF shareholders, hence why the PAF share price is up almost 14% at the time of writing. But PGF investors don’t seem convinced by the deal with the PGF share price down pretty heavily.