Hancock & Gore Limited has tabled a non-binding proposal to acquire all assets of H&G High Conviction Limited in exchange for shares, aiming to simplify its structure and boost balance sheet flexibility.
- Non-binding proposal to acquire H&G High Conviction Limited’s assets for scrip at $0.30 per share
- Proposal values HCF assets at $1.00 per share less costs and dividends
- H&G owns 20.4% of HCF and manages its portfolio through a subsidiary
- Acquisition expected to add approximately $20 million in strategic liquid assets to H&G
- Independent board committees established to oversee proposal; subject to approvals
Proposal Overview
On 13 January 2025, Hancock & Gore Limited (ASX: HNG) announced a non-binding indicative proposal to acquire all assets of H&G High Conviction Limited (ASX: HCF) in exchange for H&G shares issued at $0.30 each. The offer is based on a valuation of HCF’s assets at $1.00 per share, adjusted for sale and transaction costs as well as any dividends paid prior to completion. This scrip consideration is expected to fall within H&G’s current placement capacity under ASX Listing Rule 7.1.
H&G currently holds a 20.4% stake in HCF and manages its portfolio through its wholly owned subsidiary, H&G Investment Management Limited (HGIM). HCF is a listed investment company with a portfolio of ASX-listed investments, making the proposed acquisition a consolidation of overlapping assets and shareholder bases.
Strategic Rationale
The acquisition is positioned as a strategic move to simplify H&G’s corporate structure and operations by winding down its funds management activities. The deal is expected to increase H&G’s balance sheet equity by approximately $20 million in strategic liquid assets, with an objective to generate returns exceeding 15% per annum over time. This enhanced balance sheet flexibility is intended to support growth in H&G’s Global Uniform Solutions business, a key operating segment.
H&G highlights that the core portfolio holdings of HCF and its shareholder register meaningfully overlap with its own, suggesting potential synergies and reduced complexity post-transaction. The move also aligns with H&G’s commitment to bridging the gap between the value and price of HCF’s portfolio.
Governance and Approvals
Both companies have established Independent Board Committees to oversee the proposal. H&G’s committee excludes Mr Sandy Beard due to his role with HGIM, while HCF’s committee excludes Mr Nicholas Atkinson for his executive role with H&G. These committees are tasked with ensuring the proposal is evaluated objectively and in the best interests of all shareholders.
Notably, the proposal remains non-binding and incomplete, subject to board and shareholder approvals from both parties, as well as the negotiation and execution of definitive legal agreements. Completion would also require shareholder approvals under ASX Listing Rules 10.1 and 11.2. Both companies have indicated constructive engagement but have not guaranteed a binding transaction.
Implications for Shareholders
Should the transaction proceed, HCF shareholders (excluding H&G) would receive H&G shares via an in-specie distribution, with the consideration shares expected to represent approximately 11.9% of H&G’s expanded share capital. H&G will not participate in this distribution, and the number of shares issued will be adjusted accordingly.
This transaction could significantly reshape the investment landscape for both companies’ shareholders by consolidating assets and potentially unlocking value through simplification and enhanced balance sheet strength.
Bottom Line?
As negotiations unfold, investors will watch closely to see if this strategic consolidation delivers the promised simplification and value uplift.
Questions in the middle?
- Will HCF shareholders approve the proposed scrip-based acquisition?
- How will the transaction impact H&G’s share price and dilution risk?
- What are the prospects for H&G’s Global Uniform Solutions growth post-acquisition?