The offer is at $1.15 per share, a 67% premium to the $0.69 closing price on 7 September and an 11.5% discount to the economic NAV per share of $1.30 as at 8 September.
Under the terms of the deal, which has received the board’s unanimous support, Concord will acquire the entire issued share capital of RHM. The bid requires approval from 75% of shareholders, but already has irrevocable undertakings from 33.1% of share capital, including Round Hill CEO Josh Gruss.
“The board is pleased to present this opportunity for liquidity at a premium to both the share price and the IPO price, as well as at a narrow discount to economic net asset value per share. The recommended offer represents excellent value for shareholders,” said Robert Naylor, chair of RHM.
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According to data from the Association of Investment Companies, the £516m investment trust, which launched in November 2020, is currently trading at a 45.7% discount to net asset value.
In a research note, Jefferies analysts Matthew Hose and Fiona Huang said the deal was “highly likely to be successful” due to the trust’s large discount and sub-scale size.
Meanwhile, Peel Hunt analyst Anthony Leatham said it was unsurprising to see more bid activity, given that investor sentiment towards less frequent, relatively opaque NAVs, can be “hesitant” and result in wide discounts.
Winterflood also described the takeover bid as no surprise, noting there has been a wider trend in the closed-ended space, most notably in property, where discounts and low valuations are “too tempting” for outside parties to ignore.
“While the present value of those cashflows has undoubtedly diminished as a result of rising interest rates, Concord has clearly determined that markets have undervalued their long-term growth prospects,” the broker said.
The board said it has the intention to declare a special dividend of $0.005 per share before the completion of the sale, with the deal expected to close by 1 November.
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RHM’s portfolio consists of 51 catalogues comprising more than 150,000 songs by artists including Bruno Mars, Celine Dion, Louis Armstrong and The Supremes.
Winterflood said it is unlikely this will be the last deal of this sort, as investors will be paying “close attention” to RHM’s closest peer, Hipgnosis Songs Fund (SONG), particularly given its continuation vote at the end of this month.
Jefferies’ Hose and Huang agreed, stating “attention will now inevitably turn to Hipgnosis Songs fund, which trades on a similar discount, but is a larger vehicle, with arguably a more iconic music portfolio”.
Leatham noted SONG had said as part of its annual results that it had been considering “a number of options to enhance shareholder value”, with an update due before its annual general meeting later this month.
