Atlantis Japan Growth Fund Ltd and Nippon Active Value Fund PLC on Friday both announced they had agreed terms for a merger, where Atlantis Japan would roll over its shares into Nippon Active.
This would be in addition to Nippon Active Value’s previously announced merger with abrdn Japan Investment Trust PLC.
Atlantis Japan Growth is a Guernsey-based investment firm focused on long-term capital growth from listed Japanese equities. Nippon Active Value is a London-based Japanese small-cap-investment trust. abrdn Japan is an investor in listed Japanese companies.
Under the agreement, Atlantis Japan’s assets would be rolled over into Nippon Active Value in exchange for the issue of new Nippon Active Value shares to Atlantis Japan shareholders or an option of a cash exist for up to 25% of Atlantis Japan shares in issue.
Nippon Active Value and abrdn Japan both acknowledged that the rollover of Atlantis Japan shares into Nippon Active Value was in addition to the previously announced rolling over of abrdn Japan shares into Nippon Active Value. Neither transaction is conditional on the other.
Following the Atlantis Japan rollover, Nippon Active Value said it expects a director from Atlantis Japan will join its board. Rising Sun Management Ltd, Nippon Active Value’s investment advisers, has offered to pay for Atlantis Japan’s costs to implement the transaction up to a cap of £800,000.
Atlantis Japan said it had been actively reviewing options to ‘address the relative small size of the company’, which it said was partly driven by ‘market rotation away from the growth investment style and recent disappointing relative performance’.
The transaction is subject to approval from Atlantis Japan shareholders and receiving regulatory and tax approvals.
‘These issues have made it difficult to attract significant demand for the company’s shares and, absent any action, the discount at which the shares trade to net asset value is likely to persist,’ said Atlantis Japan.
The company said the merger proposal with Nippon Active Value provides shareholders with access to ‘a focused and differentiated investment opportunity with a strong track record, a partial cash exit option and a larger continuing investment trust with the prospect of improved liquidity’.
Atlantis Japan had been considering other options prior to the move, such as combinations with other closed-ended funds, a change of manager and a solvent liquidation with no rollover option.
Atlantis Japan said Nippon Active Value had net assets of £165.8 million at June 30, while Nippon Active Value said Atlantis Japan had net assets of £80 million on July 31.
Nippon Active Value said it would benefit from the company becoming larger after the merger, with more shareholders, greater assets and expectations of improved liquidity in company shares.
Atlantis Japan Chair Noel Lamb said: ‘Style rotation, recent poor performance and reduced liquidity have led the board to review alternative options and take market soundings. The investment adviser, Atlantis Investment Research Corp has given the fund great service over many years.
‘Looking ahead, this proposal to rollover into Nippon Active Value Fund with an option for a 25% cash exit will provide investors with increased liquidity and access to a manager with a proven record. I commend it to our shareholders.’
Nippon Active Value Chair Rosemary Morgan commented: ‘The proposed transaction will offer Atlantis Japan shareholders the opportunity to continue to have exposure to Japanese equities but now with the active management approach which provides the potential to unlock greater value in the Japanese market, whilst being part of a larger vehicle.’
abrdn Japan added: ‘The board welcomes this news as a second endorsement of the investment strategy of Rising Sun Management, investment adviser to Nippon Active Value. Furthermore, the board believes it represents the potential for a further scaling up of the combined company with the consequent benefits of greater liquidity for shareholders as well as the spreading of the fixed costs of Nippon Active Value over an even larger base.
All three companies said it anticipates a circular outlining the details of the Atlantis Japan rollover into Nippon Active Value to be published in September.
Shares in Atlantis Japan were up 8.3% to 175.40 pence each in London on Friday morning, Nippon Active Value shares were down 1.2% to 143.20p, while abrdn Japan shares were quoted at 642.50p, having last traded at 635.00p before closing on Thursday.
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