Cerno Capital to Vote Against Proposed Acquisition of JLIF

Update: On the 24th of September, the shareholders of JLIF voted to determine the future of the trust. The turnout displayed a disappointing level of shareholder apathy with just 54% of the available votes being cast. Of the votes cast, 85% voted in favour of the takeover. The shares of JLIF will cease to trade on the 28th of September. Attention will now shift to other listed vehicles that may prove attractive to private capital. Such capital appears to be willing to operate with lower discount rates than the public markets deem prudent.

The John Laing Infrastructure Fund Limited is a holding in Cerno multi-asset portfolios due to the attractive characteristics of the infrastructure assets it owns – principally, long term inflation linked cash-flows deriving from availability-based payments on socially and economically important infrastructure assets.

On the 16th of July, the Board of John Laing Infrastructure Fund Limited (JLIF) announced that following an unsolicited approach from a consortium of Dalmore Capital Limited and Equitix Investment Management Limited (the Consortium), discussions were continuing over a Possible Offer to purchase the entire shareholder capital of JLIF at a price of 142.5 pence.

On the 3rd of August, the possible offer became a recommended cash acquisition of the JLIF by Jura Acquisition Limited. At this time, the offer price of 142.5p represented a premium to the last published Net Asset Value of JLIF of 16.9 percent. However, on the 30th of August, JLIF published interim results with an updated Net Asset Value of 130p per share. On this basis, the premium being offered by Jura is 9.6%. The valuation of a portfolio of infrastructure assets requires assumptions and we note that the valuation used by the board is some 21 million pounds lower than the valuation calculated by the independent valuation team at PWC which was published in the offer document which equates to a NAV difference of 2p. If the Board had chosen to publish a NAV per share of 132p, the premium offered by Jura would have been 7.9%.

Regardless of the above valuation difference, we would argue that a single digit premium represents scant reward for shareholders giving up a scarce asset – the number of well-managed, sensibly priced vehicles offering infrastructure exposure is small. Further the there is significant value for to Jura in purchasing an established portfolio in one transaction. The Board has been conservative in valuing the portfolio which we would typically view positively, unfortunately, this has placed the board in a position of having to acknowledge that the offer price is fair because it is in excess of the conservatively calculated Net Asset Value.

We have engaged with the Board from the outset of this transaction and have expressed our support of the management team and acknowledged the invidious position in which the Board has been placed. We have communicated our opinion to co-shareholders and now must await the outcome of the shareholder vote at the Court Meeting on the 24th of September. We are voting to reject the takeover.

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By |2018-09-25T16:08:04+00:00September 7th, 2018|Asset Allocation, Cerno Capital Posts, General Investment, Other Posts|

About the Author:

Fergus surveys the full range of the firm’s investments on a bottom up basis and is principally engaged in manager and security selection. He began his investment career at Valu-Trac Investment Management in 1995, where he worked in their global equity and asset allocation products. He worked for Russell Investments as a Portfolio Manager of UK equities (2001-2006) and Asian equities (2006-2009). Fergus graduated from Edinburgh University with a BCom (Hons), holds the CFA charter and is a member of the CFA Society of the UK. Fergus is a Director of the Salters’ Management Company.