Australian United Investment Company Limited (AUI) has entered into a binding agreement to merge with Diversified United Investment Limited (DUI) through a share exchange scheme, aiming to enhance liquidity, reduce costs, and maintain dividends.
- AUI to acquire all remaining DUI shares via share exchange
- Proposed share ratio based on pre-tax net tangible assets
- Expected annual cost savings of approximately $700,000
- Dividend continuity with special fully franked dividends planned
- Call option agreement with The Ian Potter Foundation to secure additional DUI shares
Merger Details and Rationale
Australian United Investment Company Limited (AUI) has formalised plans to merge with Diversified United Investment Limited (DUI) through a scheme of arrangement. The merger will see AUI acquire all DUI shares it does not currently own by issuing new AUI shares to DUI shareholders. The exchange ratio will be determined by comparing the pre-tax net tangible assets of both companies shortly before the scheme meeting, with the current indicative ratio suggesting DUI shareholders will receive approximately 0.4815 AUI shares for each DUI share.
This merger is the culmination of months of discussions and enjoys mutual support from the boards of both companies. It reflects the similarity in their investment philosophies and portfolios, which primarily consist of shares in leading Australian companies, with DUI also holding a portion of international investments.
Strategic Benefits and Cost Efficiencies
The combined entity is expected to benefit from increased scale, with a combined market capitalisation of around $2.5 billion. This larger size may help reduce the trading discount to the underlying portfolio value, a common challenge for listed investment companies.
Operationally, the merger is projected to generate approximately $700,000 in annual cost savings, representing about 21% of the combined companies’ current non-interest expenses. These savings stem from consolidating overlapping costs such as directors’ fees, listing expenses, and insurance, while maintaining shared secretarial and rental services.
Dividend Policy and Shareholder Considerations
Importantly for income-focused investors, AUI’s directors have indicated an intention to maintain the current fully franked dividend of 37 cents per share post-merger. Additionally, they plan to pay a special fully franked dividend of eight cents per share annually for the next four years, signalling confidence in the merged entity’s cash flow stability.
The merger also includes a call option agreement with The Ian Potter Foundation, a long-standing shareholder in both companies. This agreement allows AUI to acquire additional DUI shares from the Foundation if a competing proposal emerges, further consolidating ownership and supporting the merger’s success.
Next Steps and Regulatory Approvals
The scheme of arrangement requires approval from DUI and AUI shareholders, as well as the Federal Court of Australia. Subject to these approvals and other customary conditions, shareholder meetings are expected to take place in April 2026, with implementation to follow shortly thereafter.
Both companies have secured legal advice from Herbert Smith Freehills Kramer, and governance arrangements have been carefully managed to address potential conflicts, including the chairman’s recusal from DUI board discussions on the merger.
Bottom Line?
As AUI and DUI move towards consolidation, investors will be watching closely for shareholder votes and the realisation of promised cost savings and dividend stability.
Questions in the middle?
- Will the final share exchange ratio shift materially before the scheme meeting?
- How will the merger impact the trading discount of the combined entity’s shares?
- Could any competing proposals emerge to challenge the current merger plan?