TwentyFour Income fund and UK Mortgages propose merger

The proposal involves the winding up the UK Mortgages trust, transferring its assets to the TwentyFour trust and the issue of new ordinary shares by TFIF to UKML's shareholders.

In a stock exchange announcement on 8 February the companies said both boards have consulted with major shareholders of the two companies and shareholders, with about 47% of UKML's shares, have provided written support for the scheme.

The new £720m combined trust will be managed by 11 investment professionals from TwentyFour and will provide a "strengthened market position due to greater scale and combined asset management and securitisation expertise".

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The boards noted that TFIF has evolved its strategy as "sourcing attractive risk-adjusted returns has become more challenging" and so the merger is expected diversify sources of income for the combined entity while being "consistent" with the TFIF approach.

Meanwhile the UKML board said the merger was "an attractive alternative to managed wind down" and UK Mortgage shareholders will benefit from a "significant uplift" in market value of about 15%.

The trust is trading on a 7.4% discount, while TFIF is trading on a 1.8% premium, according to Morningstar.

The proposed acquisition value per UKML Share will be 84p per UKML Share after costs and liabilities which is estimated to bring it to 83.32p per share. The proposed merger is an "all share" merger so there is no cash alternative.

The combined earnings of the trusts is expected to deliver an annual dividend of at least 6p per share.