Magellan (ASX: MFG) shares are down after announcing a proposal to restructure its global equities retail funds.
Magellan Financial Group is an ASX-listed fund manager with a specialty of investing in global shares.
Magellan’s restructuring plan
Magellan is going to merge its unlisted open-ended Magellan Global Fund, its listed open-ended Magellan Global Equities Fund (ASX: MGE) and its listed closed-ended Magellan Global Trust (ASX: MGG).
The new fund will be a single fund with two unit classes – an open class and closed class. It’s inteded for both classes of units to be listed on the ASX.
After the restructure, the enlarged Magellan Global Fund – with funds under management of around $15 billion – will undertake a 1 for 4 entitlement offer to its shareholders to subscribe for new closed class units with an attached bonus three year option. People will be able to buy new units at their net asset value (NAV) and receive 7.5% more shares. The option price will be a 7.5% discount to the NAV at the time of exercise.
Magellan also proposes to issue a bonus option to closed class unitholders on the basis of one option for every two closed class units held with each option exercisable into one closed class unit at an exercise price at a 7.5% discount to the NAV.
Magellan will pay the full costs of implementing this restructuring using existing financial resources, including undrawn debt.
Hamish Douglass, Chairman of Magellan, said: “We believe that combining Magellan’s three core global equities into a single, unified trust with a listed open class unit, which can also be transacted off-market, and a listed closed class unit is a ground-breaking innovation. We expect it will lead to simplification and efficiencies for unitholders and importantly should improve the trading price of closed class units.”
Summary
This seems like a smart move by Magellan. An increased amount of closed-class units would lock in more long term management fees for Magellan, whilst unitholders would should get a 7.5% bonus. If you’re a Magellan fund investor then the prospect of a 7.5% discount could be attractive. But other ASX growth shares may be more attractive if you don’t like the idea of paying a fairly high level of fees.
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