Edinburgh-based asset management giant Aberdeen said the boards of investment trusts Aberdeen Equity Income Trust plc (AEI) and Shires Income plc (SHRS) have agreed heads of terms for a merger of the funds.
Aberdeen said the merger would bring together “two successful investment trusts” to create a larger and stronger company for shareholders.
The investment trusts said: “The combination will be implemented through a scheme of reconstruction of SHRS under Section 110 of the Insolvency Act 1986, under which SHRS shareholders will be entitled to receive new AEI shares or to elect some or all of their shares for cash.
“The enlarged AEI will be the ongoing company.
“Abrdn Fund Managers Limited (Aberdeen) will continue to manage the enlarged company. Conditional on the combination being implemented AEI will submit an updated investment objective and policy for its shareholders to approve.
“The updated investment policy will incorporate SHRS’ ability to invest in investment-grade fixed income and preference shares as well as having selective exposure to overseas equity in developed markets.”
The funds added: “It is expected that the combination will deliver a significant increase in the size of AEI to form an enlarged company of between £289 and £320 million, depending on the take up of the cash exit offered by SHRS to its shareholders, based on combined net assets as at 31 December 2025.
“With greater scale, the enlarged company is expected to appeal to a broader range of investors, which in turn should result in higher trading volumes and improved market liquidity in the enlarged company’s shares.”
The funds said they believe that the combination would bring together two investment trusts with broadly similar investment objectives, good performance records and share price ratings, using the same portfolio management team.
It would create “a larger, more liquid, and more cost-effective company, which should deliver greater value for all shareholders.”
The funds said that for periods to December 31, 2025, both companies delivered strong investment returns. They said AEI has delivered a net asset value total return of 29.9.%, 41.2% and 63.0% over the past one, three and five years respectively and SHRS has delivered a net asset value total return of 24.8%, 42.6% and 59.2% over the same periods.
Aberdeen Equity Income Trust plc chair Sarika Patel said: “Bringing together two high-quality investment trusts with aligned objectives, a shared management team and complementary portfolios, the enlarged company will benefit from greater scale, improved liquidity and lower costs.
“The board considers that this is a rare proposal in the investment trust sector since the scheme will be undertaken from a position of strength, where both companies are performing strongly and have share prices which are either trading at, or very close to, a premium to their underlying NAVs.
“This transaction strengthens our ability to deliver a progressive dividend policy and attractive long-term returns and represents a clear vote of confidence in the enduring strengths of the investment trust structure.”
Shires Income plc chair Robin Archibald said: “By combining two successful UK equity income investment companies in the same management stable, the enlarged company can offer significant benefits of scale and economies for both sets of shareholders with a competitive investment proposition for above average UK equity income.
“This is a constructive initiative designed to enhance and, most importantly, to try to encourage new investors to support a closed-ended investment company that can provide returns not available from open-ended alternatives by using the benefits of the closed-ended structure, including gearing, allocation of costs and use of reserves.”