WAM Capital Limited (ASX: WAM), one of the ASX’s biggest listed investment companies (LICs), is making a takeover play for LIC peer Concentrated Leaders Fund Ltd (ASX: CLF).
What is the offer?
WAM Capital has announced a conditional off-market offer of 2 WAM Capital shares for every 3.7 CLF shares. WAM Capital said this represents a 15.2% premium to the CLF share price on 2 September 2020. It also represents a 7.6% premium to CLF’s pre-tax net tangible assets (NTA) at 31 July 2020 after adjusting for dividends declared in August 2020.
Why is WAM Capital making this acquisition offer?
There are two key reasons that WAM Capital is looking to make this deal happen:
A share price discount to the NTA
WAM Capital said that CLF has traded at a NTA discount throughout its history and there has been an 8.1% NTA discount over the past year. Since the management of the LIC changed to Carrara Investment Management on 1 July 2020, the average share price NTA discount has been approximately 12.7%.
“Poor corporate governance and capital management”
WAM Capital said the appointment of the new CLF manager was done without shareholder approval and this was “poor corporate governance” for a listed company.
The LIC also said that CLF had highlighted that growing funds under management would reduce costs. However, CLF then decided to reduce the size of the company by 12.8% with a special dividend. WAM Capital said this represented poor faith of the CLF board in the new manager and it reduced CLF’s cash position during this period of heightened volatility.
Summary
I can see why WAM Capital is trying to take over CLF. The deal would allow CLF shareholders to get immediate value for their shares, though its portfolio has done fairly well over the past 12 months. CLF has said to shareholders to take no immediate action. However, for income I’d rather buy ASX dividend shares like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) than either LIC.
