21st November 2025
Note that this article reflects the views of Hawksmoor Investment Management at the time of publication. It is not intended, and should not be considered, as investment advice in respect of the merits, functioning or otherwise in respect of Investment Trusts.
The announcement of a proposed combination between HICL Infrastructure Plc (“HICL”) and The Renewables Infrastructure Group Ltd (“TRIG”) to create the UK’s largest listed infrastructure company with net assets over £5bn is one of the most significant in the investment company sector for years. But sadly, we believe the deal is a poor one for BOTH sets of shareholders as we attempt to explain here.
The combination is being proposed via a scheme that involves the winding up of TRIG, and the transfer of its assets to HICL in exchange for a small part in cash and the balance in HICL shares. HICL will issue new shares to TRIG shareholders. The number of new shares is determined by reference to a ratio of HICL’s adjusted NAV per share to TRIG’s adjusted NAV per share. (“Formula asset value” in the RNS).
Clear as mud?! And therein lies one of the issues with these so-called “NAV for NAV” transactions: establishing exactly what either side receives and gives away is not straight forward.
Before we explain why we dislike the deal so much, we should first begin by reiterating that we believe the investment trust sector needs to be creative in order to offer larger vehicles that attract new shareholders. The sector is in crisis, and we do not want that crisis to be resolved via the obliteration of the majority of investment companies. Creativity is needed when the sector is languishing close to record wide discounts – meaning mergers and combinations will always be difficult when the alternative is companies buying back their own shares or even winding up (to ensure the discount is realised to the benefit of existing shareholders).
NAV-for-NAV mergers are meant to be a shareholder-friendly way for companies trading at discounts to acquire other companies also trading at discounts. They can issue shares at a discount to acquire the shares of other companies in a way that is accretive. We’ve seen such activity by London Metric and Tritax BigBox – with earnings accretion being used to justify the acquisition.
That being said, we must heed the words of Warren Buffett (thanks to Tony Foster via Chris Clothier on LinkedIn for giving us the nudge on this nugget). When ruminating on his disastrous acquisition of Dexter Shoes, Buffett observed (see his 2014 letter here, page 27):
“Too often CEOs seem blind to an elementary reality: The intrinsic value of the shares you give in an acquisition must not be greater than the intrinsic value of the business you receive.”
Which brings us to the HICL / TRIG deal. Here are the issues:
- Difference in confidence levels in their respective NAVs. NAV calculations are subject to a significant number of assumptions in order to arrive at a point in time figure. TRIG’s NAV has arguably greater levels of uncertainty around it being subject to hard to predict factors like electricity generation and long-term power price forecasts – not to mention subsidy regimes. Indeed we have been exploring whether TRIG’s “FAV” incorporates the negative news from this month’s government consultation on the subsidy regime. If there is scope for disagreement over NAVs, NAV for NAV deals are fraught with the potential for many parties to feel aggrieved, and that is especially the case here.
- Mandate change. HICL owns core infrastructure assets, TRIG owns renewable energy assets. Many shareholders (ourselves included) specifically want these companies to remain specialised. We did not want HICL to expand its mandate into renewables which, as intimated above, carry a very different risk profile. HICL has announced a pivot in strategy with a greater emphasis on capital growth over dividend growth, and higher total returns. We are not confident that HICL will be able to achieve their desired portfolio faster or more easily as a result of this combination.
- Infrared are the manager of both trusts. They benefit from this transaction. There was always a danger that TRIG, trading on a wide discount, might be lost to its management (either via a wind up after failing a continuation vote promised to shareholders in June next year or via bid for the company). Instead, the transfer of assets from TRIG to HICL effectively means a new 3yr+ management contract is secured on them for Infrared.
- Lack of synergies. There are no cost synergies beyond a very small fee reduction. The Board will be a combination of both – although apparently we can expect an independent process to review Board composition that will result in a smaller number of directors in due course. It is not a great look for the sector, even if just temporary, to have all eleven members of the combined Boards continue.
- How do we know this larger scale vehicle will indeed attract new shareholders? Do we know pension funds want an ultra-diversified vehicle across core infrastructure and renewable energy? Do they want it through a listed vehicle as opposed to a private fund/LTAF? In any case, should existing shareholders bear the cost of a bad deal to create a vehicle for new shareholders? Both companies could achieve greater scale by seeking to combine with other trusts that have similar assets and objectives and don’t negatively impact the current shareholder base.
We own HICL for the exposure to core infrastructure assets that offer us attractive rates of return, with some protection from inflation and low counter-party risk. We approved the Board’s previously communicated commitment to pivot towards a more growth-oriented strategy. In a world of higher risk-free rates, it is clear to see that investment companies focusing less on yield and more on total return are valued at tighter discounts by investors. We do not think that TRIG’s assets bring much to the portfolio. They do help support a higher dividend, and in time, may help support a growth strategy via disposals and excess cash. But HICL could have done this on its own. In addition, and as one can see from the share price reaction after the announcement, this is a bad deal in financial terms for HICL shareholders. It is not clear the deal is accretive in any form. Instead, we have effectively seen the wider discount that TRIG shares were on, transferred over to HICL shares.
We own TRIG because we believed the discount to (an admittedly highly uncertain) NAV was too wide. Disposals had been occurring around NAV, however, and the manager had expressed confidence that the remaining portfolio could eventually be sold (if required) at close to carrying value. We also had a continuation vote in June of next year to focus the minds of the Board and the manager to narrow the discount. In the meantime, we were being paid a very attractive (just about covered) dividend offering a significant premium to the yields available in fixed income securities of similar risk profiles. The terms of the combination with HICL effectively mean we swap our TRIG shares for discounted shares in an overly diversified vehicle, where the potential for value realisation from owning TRIG shares is lost.
So, we find ourselves in the position of not liking the deal from the HICL and TRIG shareholder perspective and will be voting accordingly.
There are three things we would have liked to have seen to make the deal more palatable – for both sets of shareholders:
- Infrared needed to sharpen its pencil. The benefit from removing the risk of losing TRIG (or much of TRIG’s assets) post the 2026 continuation vote should have been shared with all shareholders. Lower fees should have been negotiated to remove accusations of the Board favouring the manager over shareholders.
- The Board should have committed to a reduction to a more sensible number of people by a certain date (e.g. within 6 months). This would have avoided cynical commentary around this issue.
- If one of the key reasons for doing the deal is to create a vehicle of sufficient scale to attract new shareholders (and thus hugely increase the probability of narrowing the discount significantly), then such investors should have been sought out prior to the deal. Imagine announcing, alongside the £100m commitment from Infrared’s parent, Sun Life (who will buy in the secondary market over the next 2 years), further sizeable commitments from other pension funds….. Shareholders may have seen the bigger picture and seen how much they would benefit from a more highly rated company with a brand new huge shareholder base.
We love this sector, and we want it to succeed. However, we cannot stand behind deals of this nature when both the value destruction and the lost potential value creation is too great. We urge the Boards of both companies to think again and consider our suggested improvements.
Ben Conway – Head of Fund Management
Subscribe to receive our latest commentary and insights straight to your inbox.
For professional advisers only. This article is issued by Hawksmoor Fund Managers which is a trading name of Hawksmoor Investment Management (“Hawksmoor”). Hawksmoor is authorised and regulated by the Financial Conduct Authority. Hawksmoor’s registered office is 2nd Floor Stratus House, Emperor Way, Exeter Business Park, Exeter, Devon EX1 3QS. Company Number: 6307442. This document does not constitute an offer or invitation to any person, nor should its content be interpreted as investment or tax advice for which you should consult your financial adviser and/or accountant. The information and opinions it contains have been compiled or arrived at from sources believed to be reliable at the time and are given in good faith, but no representation is made as to their accuracy, completeness or correctness. Any opinion expressed in this document, whether in general or both on the performance of individual securities and in a wider economic context, represents the views of Hawksmoor at the time of preparation and may be subject to change. Past performance is not a guide to future performance. The value of an investment and any income from it can fall as well as rise as a result of market and currency fluctuations. You may not get back the amount you originally invested. FPC25585
