Dunedin Smaller Investment : Cos Inv Tst PLC - Publication of Circular

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LEI: 213800CI43OQT8KBKE03

4 September 2018

Dunedin Smaller Companies Investment Trust plc

Publication of circular

The Company has today published a circular to Shareholders in connection with the proposals announced on 21 June 2018 in respect of a merger with Standard Life UK Smaller Companies Trust plc (the 'Circular').

Introduction

The Board announced on 21 June 2018 that it had undertaken a strategic review of the Company and its position in the UK smaller companies sector and that it had reached agreement, in principle, on the terms of a merger with Standard Life UK Smaller Companies Trust plc ('Standard Life Smaller' or 'SLS') to be effected through a scheme of reconstruction and winding up of the Company.

General Meetings have been convened for 28 September 2018 and 8 October 2018 to implement the Proposals.

The Proposals

Background to and rationale for the Proposals

As announced in June, the Board was aware that the Company's size and the secondary market liquidity in its shares had made it challenging to attract new investors and believed that these factors had contributed to the discount to net asset value at which the Company's shares traded prior to the announcement of the merger. In addition, the recent merger of the parent company of the Company's manager Aberdeen Asset Management PLC with Standard Life plc has resulted in the Company being managed alongside SLS, a company with a very similar UK smaller companies mandate.

Having considered a number of options and following consultation with the Company's largest Shareholders, the Board believes that Shareholders, as a whole, still wish to retain exposure to UK smaller companies via an investment trust with a similar mandate managed by the Company's current manager. Consequently, the Company has agreed the terms of a merger with Standard Life Smaller.

Details of the Scheme

Under the Scheme:

- The Company will be put into members' voluntary liquidation following the realignment of its business and assets into two separate funds namely (i) the 'Rollover Fund' comprising the interests of Shareholders, whose holdings will be rolled over into shares in Standard Life Smaller and (ii) the 'Liquidation Fund' which will comprise an amount which the Liquidators consider sufficient to provide for all current and future liabilities (including tax and contingent liabilities) of the Company, including the entitlements of any Dissenting Shareholders and the costs of the Scheme.

- Standard Life Smaller will allot New Shares to the Liquidators who will renounce them in favour of the Shareholders (save for any Dissenting Shareholders) in exchange for the transfer to it of the cash, undertaking and other assets comprised in the Rollover Fund.

- The issue of New Shares to citizens of, or persons or residents in, jurisdictions outside the United Kingdom may be affected by the laws of the relevant jurisdiction. Further details relating to Overseas Shareholders and Restricted Shareholders are set out in the paragraph headed 'Overseas Shareholders and Restricted Shareholders' contained in Part 3 of the Circular.

On the Calculation Date, there will be appropriated to the Liquidation Fund such of the cash, undertaking and other assets of the Company estimated by the Board in consultation with the Liquidators to be sufficient to meet the outstanding current and future liabilities, including contingent liabilities, of the Company, including the costs of the Scheme and the entitlements of any Dissenting Shareholders. The balance of the cash, undertaking and other assets of the Company will be allocated to the Rollover Fund.

Management of the Company's portfolio prior to implementation of the Scheme

Since the announcement of the Proposals in June, the Company's portfolio has continued to be managed in accordance with the terms of its current investment policy but with the objective of ensuring that, to the extent possible, ahead of the implementation of the Proposals it will comprise assets that the SLS Investment Manager expects SLS to hold following the merger. The Board is pleased to report that the realignment process is substantially complete and therefore the transaction costs associated with this process have now been crystallised.

The Board is pleased to report that the costs incurred by the Company in the realignment of its portfolio amounted to approximately 0.8 per cent. of the Company's Net Asset Value (as at 30 July 2018). The Board considers this cost to represent good value for Shareholders given the liquidity profile of the Company's portfolio prior to commencement of the realignment process.

Benefits of the Proposals

The Board believes that the Proposals will have the following benefits for Shareholders:

- a continued investment exposure to UK smaller companies via a significantly larger investment trust, with a strong track record, a narrower discount and substantially greater secondary liquidity, all of which should appeal to a broader range of investors.

- access to Standard Life Smaller's robust discount control mechanism which seeks to maintain a discount level of less than 8 per cent. to the cum-income, diluted, NAV per share under normal market conditions and the potential for a periodic exit route by way of periodic tender offer.

- a significant increase in the valuation of Shareholders' investments due to the narrower discount to net asset value at which the Company's shares have traded since announcement of the Proposals. The Proposals are expected to result in a continued increase in the valuation of Shareholders' investments due to the narrower discount to net asset value at which the SLS Ordinary Shares have historically traded compared with the Shares. Over the 12 months ended 20 June 2018, the shares of the Company and of Standard Life Smaller traded at average discounts to net asset value of 17.4 per cent. and 3.8 per cent. respectively). Since announcement of the Proposals on 21 June 2018 to 30 August 2018, the shares of the Company and of Standard Life Smaller traded at average discounts to net asset value of 10.4 percent. and 7.4 per cent. respectively.

Standard Life Smaller

The investment objective of Standard Life Smaller is to achieve long-term capital growth by investment in UK quoted smaller companies, which is very similar to the Company's current investment objective. Standard Life Smaller's alternative investment fund manager for the purposes of the AIFM Directive is Standard Life Investments (Corporate Funds) Limited, which has delegated the day-to-day management of the portfolio to Standard Life Investments Limited ('SLI'). In particular, the Aberdeen Standard Investments Smaller Companies team, led by Harry Nimmo and supported principally by Abby Glennie, is responsible for the management of the portfolio. Standard Life Smaller's portfolio has been managed by Harry Nimmo since SLI was appointed as its manager in September 2003.

Shareholders' entitlements

Under the Proposals, if implemented, Shareholders (save for Restricted Shareholders) will receive New Shares in respect of their entire investment in the Company. The Scheme will be effected on a NAV for NAV basis as at the Calculation Date. Following the Calculation Date, the Company will set aside cash and other assets in the Liquidation Fund in an amount which it, following consultation with the liquidators, considers sufficient to provide for all current and future, actual and contingent liabilities of the Company, including a retention (estimated to be £50,000) in respect of unascertained and unknown liabilities, an amount equal to the costs of the Scheme and an amount (if required) in respect of Shareholders who have exercised their right to dissent from the Scheme under section 111 of the Insolvency Act 1986. Thereafter, the balance of the cash, undertaking and other assets of the Company will be transferred to Standard Life Smaller. To the extent that any part of the Liquidation Fund is not subsequently required to discharge the Company's liabilities, it will be transferred to Standard Life Smaller for the account of Standard Life Smaller, as an accretion to its assets without any further SLS Ordinary Shares being issued in respect of such transfer.

For the purposes of the Scheme, the NAV of the Company as at the Calculation Date will be adjusted to take account of (i) the Liquidators' retention (estimated to be £50,000) and the Liquidators' costs; and (ii) all other costs associated with the Proposals not already accrued by the Company, including the costs incurred by SLS in connection with the Proposals and an amount in respect of Dissenting Shareholders (if any) (the 'FAV per Dunedin Share'). The SLS NAV at the Calculation Date will be adjusted to take account of any dividends that have been declared but not paid and any costs already accrued in the SLS NAV (the 'FAV per SLS Share').

Shareholders will be issued such number of New Shares with a FAV per SLS Share (as at the Calculation Date) equal to 100 per cent. of the FAV per Dunedin Share of their holding of Shares. The Calculation Date for determining the value of the Rollover Fund is expected to be 4 October 2018. The Record Date for the basis of determining Shareholders' entitlements under the Scheme is 6.00 p.m. on 27 September 2018.

For illustrative purposes only, had the Calculation Date been 30 August 2018 (being the latest practicable date prior to the publication of the Circular) and assuming that no Shareholders exercise their right to dissent from participation in the Scheme, the FAV per Dunedin Share would have been 324.05 pence and the FAV per SLS Share would have been 560.99 pence. This would have produced a conversion ratio of 0.577639. Therefore, in aggregate, 27,644,268 New Shares would have been issued to Shareholders under the Scheme, representing approximately 27.4 per cent. of the issued ordinary share capital of the enlarged Standard Life Smaller. Therefore, a holder of 1,000 Shares would receive 577 New Shares with an aggregate net asset value of £3,237 and an illustrative market value of £3,012 and would have received a final interim dividend of £55. These figures may be compared with the NAV and market value of 1,000 Shares as at 30 August 2018, being £3,278 and £3,000 respectively.

Final interim dividend

The dividend yield of Standard Life Smaller is approximately 1.3 per cent. as at 30 August 2018, compared to 2.1 per cent. for the Company (in both cases by reference to the total dividends paid over the preceding 12 months). For this reason, the merger of the Company and Standard Life Smaller is expected to result in a reduction in dividends received by Shareholders in the medium term.

In recognition of this, the Board has resolved to pay a final interim dividend of 5.5 pence per Share, being approximately equivalent to the estimated aggregate reduction in dividends for the 12 months following the merger. This dividend will be paid on 3 October 2018 to Shareholders on the register on 21 September 2018. No further dividends are expected to be paid by the Company after the payment of this final interim dividend. The Company's revenue reserves remaining after the payment of the final interim dividend will be allocated to the Rollover Fund.

Costs of implementing the Scheme

In the event that the Scheme is implemented, the Company will bear all its own costs as well as the costs of Standard Life Smaller associated with the Scheme. The aggregate costs are estimated to be approximately £1.8 million (including irrecoverable VAT and stamp duty but excluding the portfolio realignment costs referred to above), equal to approximately 3.76 pence per Share or 1.1 per cent. of Net Asset Value (both figures as at 30 August 2018). If the Scheme becomes effective, Standard Life Smaller will bear no costs in connection with the Proposals.

The costs of the Scheme will therefore be borne by the Liquidation Fund.

In the event that Standard Life Smaller resolves not to proceed to implement the Scheme on the terms described in the Circular (including if SLS Shareholders do not approve any resolution required to implement the Scheme) then Standard Life Smaller will bear the abort costs of both parties (estimated at £325,000 in respect of the Company and £410,000 million in respect of Standard Life Smaller).

In the event that the Company resolves not to proceed to implement the Scheme on the terms described in the Circular (including if Shareholders do not approve any resolution required to implement the Scheme) then the Company will bear the abort costs of both parties.

In the event that both of the parties resolve not to proceed to implement the Scheme on the terms described in the Circular (including if both Shareholders and the SLS Shareholders do not approve any resolutions required to implement the Scheme) then each party will bear its own abort costs.

The Liquidator's retention is estimated at £50,000, which will be retained by the Liquidators to meet any unknown or unascertained liabilities of the Company.

In respect of termination of the Company's various service contracts with service providers in the light of the proposed voluntary winding up, it is not anticipated that any compensatory payments will be made to any service providers in this regard.

Conditions of the Proposals

Implementation of the Proposals is subject to a number of conditions, including:

- the passing of the special resolutions to approve the Proposals at the General Meetings;

- the passing of the special resolution to approve the issue of New Shares pursuant to the Proposals at a general meeting of SLS Shareholders which has been convened for 3 October 2018; and

- the UK Listing Authority agreeing to admit the New Shares to the Official List and the London Stock Exchange agreeing to admit the New Shares to trading on its Main Market, subject only to allotment.

If any condition is not satisfied, the Proposals will not become effective, the Company will not proceed with the winding up and instead will continue in existence and continue to be managed under the current investment policy. In these circumstances the Directors will reassess the options available to the Company at that time.

Taxation

The receipt by Shareholders of New Shares under the Proposals should not constitute a disposal of the relevant Shares for the purposes of UK taxation of chargeable gains. On the issue of New Shares, a Shareholder's base cost allocated to the corresponding Shares will be attributed to the new holding of New Shares and the Shareholder will not be regarded as having disposed of their Shares.

General Meetings

The Proposals are conditional, inter alia, upon Shareholders' approval of the resolutions to be proposed at the First General Meeting and the Second General Meeting. Both General Meetings will be held at the offices of Aberdeen Standard Investments, 1 George Street, Edinburgh EH2 2LL.

First General Meeting

The First General Meeting will be held at the offices of Aberdeen Standard Investments, 1 George Street, Edinburgh EH2 2LL on 28 September 2018.

The Resolution to be considered at the First General Meeting (which will be proposed as a special resolution) will, if passed, empower the Liquidators to accept the New Shares for distribution to Shareholders, approve the Scheme and authorise its implementation by the Liquidators, and authorise the Liquidators to apply to delist the Shares. Further details of the Scheme are set out in Part 4 of the Circular. The Resolution will require the approval of at least 75 per cent. of the votes cast in respect of it.

The Scheme will not become effective unless and until, amongst other conditions, the Resolution to be proposed at the Second General Meeting has also been passed.

Second General Meeting

The Second General Meeting will be held at the offices of Aberdeen Standard Investments, 1 George Street, Edinburgh EH2 2LL on 8 October 2018.

The Resolution to be considered at the Second General Meeting (which will be proposed as a special resolution) will, if passed, place the Company into members' voluntary liquidation, appoint the Liquidators and authorise the Liquidators to exercise certain powers for which the express sanction of Shareholders is required. The Resolution will require the approval of at least 75 per cent. of the votes cast in respect of it.

Overseas Shareholders and Restricted Shareholders

Overseas Shareholders will not receive a copy of the SLS Prospectus unless they have satisfied the SLS Directors that they are entitled to receive and hold New Shares without breaching any relevant securities laws and without the need for compliance on the part of the Company or Standard Life Smaller with any overseas laws, regulations, filing requirements or the equivalent.

No action has been taken or will be taken in any jurisdiction other than the UK where action is required to be taken to permit the distribution of the Circular and/or the SLS Prospectus. Accordingly, such documents may not be used for the purpose of, and do not constitute, an offer or solicitation by anyone in any jurisdiction or in any circumstances in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation.

General

Expressions used but not defined in this announcement have the meanings ascribed to them in the Circular.

The Circular may be downloaded from www.dunedinsmaller.co.uk.

A copy of the Circular has been submitted to the National Storage Mechanism and will shortly be available for inspection at: http://www.morningstar.co.uk/uk/NSM.

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