The boards of Fidelity China Special Situations PLC (LSE:FCSS) and abrdn China Investment Company Ltd (ACIC) have agreed a merger of the two trusts.
Shares in ACIC jumped 12% to 451p on Tuesday morning, recovering further from a recent seven-and-a-half-year low, while those in Fidelity China fell 0.5% to 210.95p.
If shareholders of the two investment companies agree to the deal, then the assets and cash of ACIC would be transferred to the Fidelity trust, with Fidelity continuing as manager.
A cash option for ACIC shareholders is limited to 33% of the total shares in issue, offered at a 2% discount to the ACIC share price, and if total elections for this option exceed this threshold then the excess will be scaled back into new FCSS shares on a pro rata basis.
The ACIC board said in a statement that Fidelity China is the top performing as well as the largest and most liquid UK investment trust investing in China.
The decision was made following a review process and consultation with ACIC's major shareholders, said chair Helen Green, who added that the board has concluded that it is “the best practicable option to address the company's over-concentrated register and to provide significantly improved liquidity to our shareholders”.
The major shareholders, representing roughly 73% of the company's share register, have indicated their support for the merger.
Fidelity has agreed that, with effect from the admission to listing and trading of the new shares, the base management fee payable by the company under the investment management agreement will be reduced to 0.65% from the current 0.70%. It will hold a continuation vote in 2029 and every five years thereafter.
Fidelity China, which was launched in 2010, is also the largest UK-listed investment company specialising in China with net assets as at 31 October 2023 of £1.1 billion.
ACIC’s most recent net asset value (NAV) per share, from 24 November, was 495.08p, excluding income, or 495.56p with income included.