Consolidation continues apace in the investment trusts sector with BlackRock Throgmorton (THRG) to combine with BlackRock Smaller Companies (BRSC).
Shareholders will be offered cash exits of up to 38% and 28% in both UK smaller companies trusts respectively.
Saba Capital holds 17.8% and 10.4% of the voting rights in BlackRock Throgmorton and BlackRock Smaller Companies respectively. The US activist has committed to vote in favour of the deal.
Significant overlap
The latest trusts merger brings together two stablemates with portfolio overlap of about 75%.
Bulked-up BlackRock Smaller Companies will boast net assets of roughly £780 million. For shareholders, this will deliver ‘greater scale, liquidity and cost efficiencies’.
The fund will also consolidate its position as the largest growth-focused trust in the Association of Investment Companies’ (AIC) UK Smaller Companies sector.
Quality-growth focus
Roland Arnold will remain as lead manager, with Throgmorton’s Dan Whitestone acting as co-manager.
They’ll continue to invest in quality-growth companies driven by strong management teams.
The focus will be on market leaders with pricing power, robust balance sheets, strong earnings growth and high cash conversion.
Saba gives its blessing
Saba has been targeting UK-listed trusts trading at significant discounts to NAV. It has 17.8% and 10.4% of the voting rights in BlackRock Throgmorton and BlackRock Smaller Companies respectively.
Led by Boaz Weinstein, Saba has adopted a different stance to its decision to block the recent merger between Edinburgh Worldwide (EWI) and Baillie Gifford US Growth (USA).
It has provided an irrevocable commitment to vote in favour and participate in both cash exits. In a change of tack, Saba even welcomed the announcement.
According to Saba, this includes ‘several shareholder-friendly initiatives’ for the combined company. These include ‘reduced management fees, lower ongoing charges, an initial cash exit opportunity and a triennial conditional exit opportunity.’
Saba added: ‘We appreciate the constructive dialogue we’ve had with the companies’ boards of directors and their advisors and believe the combination proposal is in the best interests of shareholders.’
Delivering outperformance
QuotedData’s James Carthew said: ‘Many investors have wondered why BlackRock ran two fairly similar UK small cap trusts and knocking them together makes sense, especially as it will get Saba off their back for a few years and allow them to focus on delivering long-term outperformance of the benchmark.’
Carthew is ‘very much in favour of this proposal and pleased to see that Arnold and Whitestone will be co-managers of the combined vehicle.’
This looks a good deal for shareholders in two trusts whose NAV discounts reflect the headwinds that have faced UK smaller companies.
Both funds outperformed the Deutsche Numis Smaller Companies plus AIM Index over the 10 years to January 2026.
The enlarged trust will have the lowest charges in the AIC’s UK Smaller Companies sector, among trusts that do not have a performance fee.
The deal is also positive for income investors. The dividend policy is expected to build on the track record of BlackRock Smaller Companies, a ‘Dividend Hero’ that has delivered annual dividend growth for 20-plus years.
Read the press release here: https://www.londonstockexchange.com/news-article/THRG/combination-of-blackrock-smaller-companies-trust-plc-and-blackrock-throgmorton-trust-plc/17469556
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