OIT Odyssean Investment Trust Plc

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21 May 2024

Odyssean Investment Trust PLC

Seventh-Year Realisation Opportunity

Tender Offer and Publication of Circular

Odyssean Investment Trust PLC (the "Company") launched on 1 May 2018 and at that time, the Board stated its intention to offer Shareholders the opportunity to elect to realise the value of their investment in the Company at the Net Asset Value per Ordinary Share less applicable costs during the seventh year following initial admission of the Ordinary Shares and every seventh year thereafter. The exact timing of the realisation within each seventh year is at the discretion of the Board, in consultation with the Portfolio Manager.

As the Company enters into its seventh year following initial admission, the Board has agreed to provide the realisation opportunity to Shareholders at this time and has determined to implement the realisation opportunity by way of the Tender Offer.

Accordingly, the Company will today publish a circular (the "Circular") containing details of the Tender Offer including the notice of a general meeting to be held at 11:00am on 6 June 2024. The Circular will shortly be available on the Company's website at https://www.oitplc.com and will also be submitted to the National Storage Mechanism, where it will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

A video, produced by the Portfolio Manager, reviewing progress since the Company's launch, more details on the realisation opportunity, and the Portfolio Manager's outlook for the medium to long term will also shortly be available on the Company's website at https://www.oitplc.com.

The Tender Offer is not conditional on the Ordinary Shares trading at a discount to the Net Asset Value per Ordinary Share as at the Calculation Date.  In the event that the Ordinary Shares are trading at a premium to the Net Asset Value per Ordinary Share as at the Calculation Date, Shareholders who tender Ordinary Shares may receive less than they would otherwise be able to realise by selling such Ordinary Shares in the market. The Company's share price of 168.25 pence as at close on 20 May 2024, being the closing price immediately prior to this announcement, represents a premium of 2.1 per cent. to the last published NAV of 164.78 pence as at 17 May 2024.

The publication of the Company's annual report and accounts for the year-ended 31 March 2024 is expected following conclusion of the Tender Offer, on or around 10 June 2024.

Tender Offer

Shareholders will be offered the opportunity to tender for sale none, some or all of their Ordinary Shares at the Tender Price pursuant to the Tender Offer by Winterflood.  A Tender Pool will be established by the Company representing the pro-rata interests of the Tendering Shareholders.  The Tender Price shall be the Final Tender Offer Asset Value of the Tender Pool divided by the total number of Exit Shares, where the Final Tender Offer Asset Value is the value of the Tender Pool following the realisation of all assets within the Tender Pool, less any stamp duty or stamp duty reserve tax arising on the repurchase of Ordinary Shares by the Company from Winterflood pursuant to the Tender Offer (adjusting for any monies paid to Tendering Shareholders by way of an interim distribution).

Incoming Investors will be invited to acquire the tendered Ordinary Shares from Tendering Shareholders through Winterflood at the Investment Price, being a price equal to the NAV per Ordinary Share on the Calculation Date. The aggregate Investment Price (less costs and commissions), for such number of Ordinary Shares as Incoming Investors agree to acquire, will be paid to the Company and allocated to the Tender Pool and may form part of the cash proceeds to be paid to Tendering Shareholders for the Exit Shares.

Any Ordinary Shares not sold by Winterflood to Incoming Investors, will be repurchased by the Company pursuant to the Repurchase Agreement. The Company may, at its option, issue new Ordinary Shares for sale in the market and use the proceeds, in whole or in part, to fund the Tender Pool. The Board retains the discretion to allocate only cash and near cash assets of the Company to the Tender Pool. 

If the number of Ordinary Shares tendered is such that the Board is of the view that the continuance of the Company is not in the best interests of the continuing Shareholders, it reserves the right to terminate the Tender Offer.  Additionally, if the Tender Offer were to result in the Concert Party (as defined below) being interested in Ordinary Shares which, in aggregate, carry 30 per cent. or more of the voting rights of the Company, the Board will terminate the Tender Offer.  If the Tender Offer is terminated, the Board will put forward alternative proposals as soon as practicable and, in any event, within six months of termination of the Tender Offer, which proposals will allow Shareholders to realise the value of their investment in the Company at Net Asset Value per Ordinary Share less applicable costs. If the Tender Offer is terminated, the Company will make an announcement through an RIS that such is the case.

Investment Performance and Outlook

The Company raised £87.5 million before expenses at launch through the issue of new Ordinary Shares at 100p per Ordinary Share. In the period since initial admission, the Company's market capitalisation has grown to £206.5 million through both investment performance and new issuance as the Company's Ordinary Shares outperformed the market on both an NAV and share price basis. The NAV per Ordinary Share has increased to 164.78 pence (as at 17 May 2024), generating a total return for Shareholders of 67.6 per cent. (or 8.9 per cent. annualised) which compares to the return of the NSCI + AIM (ex-investment trusts) Index over the same period of 12.3 per cent. (or 1.9 per cent. annualised).

The Board and the Portfolio Manager believe that the investment opportunity set out at the time of the Company's launch in 2018 continues to remain. Over the long term, UK quoted smaller companies have significantly outperformed UK larger companies on a compounding basis, as well as generating low-teens annualised absolute returns. However, unusually, this has not been the case since the Company was launched, with UK smaller companies lagging UK larger companies, and delivering annualised returns of 1.9 per cent. per annum.  Given the unsupportive market backdrop since launch, the absolute and relative performance of the Company's NAV per Ordinary Share demonstrates how the Company's differentiated investment strategy can add considerable value.

The recent underperformance of UK smaller companies has been driven by a number of factors including but not limited to the asset class being out of favour, rising interest rates and smaller companies being less able to absorb the impact from market wide events including the COVID-19 pandemic and the UK recession. This has been exacerbated by a flight of equity investors to US equities, especially large-cap technology stocks.

The UK smaller companies sector is currently unloved. The Board shares the Portfolio Manager's view that there is considerable value in parts of the market. Valuation data provided by Quest, Canaccord Genuity`s cashflow based tool, suggests that UK equities, especially UK smaller companies, are trading at very significant absolute discounts to their intrinsic value, and are extremely attractively priced relative to other equity markets. 

The Board and the Portfolio Manager believe that many quoted UK smaller companies offer the potential to re-rate markedly in the medium-term, or benefit from continued M&A activity. Since launch, the Company has benefitted from M&A activity, with 12 companies of the 41 investments since launch being subject to completed or attempted takeover approaches. The Portfolio Manager views the combination of the scope for re-rating and improving sentiment towards UK smaller companies as providing more of a tailwind for the absolute performance of the strategy than has existed since the time of the Company's IPO.

There is less sell-side research cover on UK smaller companies, which has only reduced since the introduction of MiFID II in January 2018. In addition, there are fewer natural buyers of smaller companies given the liquidity mis-match with that required for open-ended funds. This has been exacerbated by negative fund flows from open-ended funds focused on smaller companies, which the Portfolio Manager estimates has totalled £2.8 billion since the Company's launch. The Portfolio Manager believes that these negative fund flows have depressed valuations of UK smaller companies, with open-ended funds becoming forced sellers and more reluctant to invest in less liquid smaller companies.  

As a result, UK smaller companies are overlooked and undervalued further reducing liquidity. This illiquidity leads to a mis-pricing opportunity which the Board and the Portfolio Manager continue to believe is best accessed via the Company's closed-ended structure that allows the Portfolio Manager to invest through the cycle in a concentrated portfolio of stocks in which it has high conviction. As well as trading at historically low multiples, the Portfolio Manager believes many of these companies, often market leaders in a niche, are undergoing positive change driven by refreshed leadership. The market environment is well suited to the Portfolio Manager's selective and engaged investment strategy in which liquidity is poor and an investment is more akin to a private equity investment, both with regards to management of the position and eventual liquidity.

The Portfolio Manager believes that as interest rates start to fall, interest in UK smaller companies will improve and it's likely that the valuation headwinds will abate. With liquidity much reduced this could lead to a period of above average returns if valuations of smaller companies return to historic levels. Using the closed-ended fund structure to enable investment in less liquid companies, the Portfolio Manager has positioned the portfolio to benefit from such a scenario. With many portfolio companies' valuations significantly below their long-term average enterprise value to sales ratio and price to book ratio, the Portfolio Manager anticipates that either these holdings are likely to re-rate or alternatively be acquired by larger corporations, probably from North America or Asia.

The Company's shares have maintained a strong rating in the period since launch having traded at an average discount of 0.1 per cent. despite the asset class being out of favour. The Board believes this reflects the marketing efforts of the Portfolio Manager allied with a differentiated strategy and strong absolute performance. In addition, the combination of the Realisation Opportunity and discount control mechanism has ensured that the rating has remained relatively stable even during periods of market instability - both mechanisms that will remain in place during the next investment cycle.

The Board is optimistic about the opportunity for the Company. It is expected that as market conditions and sentiment improve, the UK smaller companies sector should see a re-rating delivering strong absolute performance while the Portfolio Manager's engaged investment strategy has the potential to deliver outperformance, with M&A in the UK market anticipated to provide continued potential for re-rating or exit opportunities and the benefits of self-help initiatives being executed at portfolio companies begin to bear fruit.

The Concert Party

For the purposes of the Takeover Code, Odyssean Capital LLP, to whom certain day-to-day portfolio management services in respect of the Company's assets has been delegated by the Company, is deemed to be acting in concert with the Company. Each of Stuart Widdowson, Ian Armitage, Christopher Mills and Edward Wielechowski are members and/or directors/key employees of Odyssean Capital LLP. Christopher Mills is also the Chief Executive Officer and Investment Manager of NASCIT (the Company's largest shareholder), with day-to-day discretionary authority over the management of NASCIT's assets. In addition, Harwood Capital Management Limited (a company under the control of Christoper Mills) controls 50 per cent. of the voting rights in Odyssean Capital LLP. Harwood Capital Management Limited is also the parent company of Harwood Capital Management (Gibraltar) Ltd.

Harwood Capital Management Limited, Harwood Capital Management (Gibraltar) Ltd, Odyssean Capital LLP, Stuart Widdowson, Ian Armitage, Christopher Mills and Edward Wielechowski are deemed to be acting in concert for the purposes of the Takeover Code (together the "Concert Party").

As at the close of business on 20 May 2024, the members of the Concert Party were interested in, for the purposes of the Takeover Code, 26,494,285 Ordinary Shares. Such Ordinary Shares represent, in aggregate, approximately 21.58 per cent. of the Company's Voting Rights as at the close of business on 20 May 2024.

If the Tender Offer were to result in the Concert Party being interested in 30 per cent. or more of the Company's total Voting Rights, the Board will terminate the Tender Offer.  By way of illustration, in order for the Tender Offer to result in the Concert Party being so interested, on the assumption that no members of the Concert Party tender any Ordinary Shares under the Tender Offer, other Shareholders would need to tender 28.0 per cent, or more of the issued Ordinary Share capital under the Tender Offer.

General Meeting

The Proposals are subject to Shareholder approval.  A notice convening the General Meeting to be held at offices of Odyssean Capital LLP, 6 Stratton Street, Mayfair, London W1J 8LD on 6 June 2024 at 11.00 a.m. is set out at the end of the Circular.

At the General Meeting, a resolution will be proposed to give the Company authority to make market purchases pursuant to the Tender Offer (the "Resolution"). Should the Resolution fail to be passed, the Tender Offer will not proceed.

In order to be passed, the Resolution, which is to be proposed as a special resolution and taken on a poll, will require the approval of Shareholders representing at least 75 per cent. of the votes cast at the General Meeting.

Recommendation

The Board considers that the Proposals are fair and reasonable and in the best interests of the Company and its Shareholders as a whole.  Accordingly, the Board recommends unanimously that Shareholders vote in favour of the Resolution to be proposed at the General Meeting.

The Directors intend to vote in favour, or procure the vote in favour, of the Resolution at the General Meeting in respect of their own beneficial holdings of Ordinary Shares which, in aggregate, amount to 460,549 Ordinary Shares representing approximately 0.38 per cent. of the issued Ordinary Share capital of the Company (excluding any shares held in treasury).

The Directors will not tender any of their own Ordinary Shares. In addition, no member of the Concert Party intends to tender any of its own Ordinary Shares under the Tender Offer.

The Directors make no recommendation to Shareholders as to whether or not they should tender all or any of their Ordinary Shares in the Tender Offer. Whether or not Shareholders decide to tender their Ordinary Shares will depend, amongst other factors, on their view of the Company's prospects and their own individual circumstances, including their own tax position.

Expected Timetable

*The Calculation Date may be at such later date as may be agreed between the Company and Winterflood.

**The sale of the On-Sale Shares is anticipated to take place on 7 June 2024. To the extent the sale of On-Sales Shares occurs at a later date, the date of subsequent events will be adjusted accordingly.

(1) In the event that assets (not being near-cash assets) are required to be realised in the Tender Pool this date will be as soon as practicable after commencement of the realisation of such assets in the Tender Pool.

(2) In the event that assets (not being near-cash assets) are required to be realised in the Tender Pool this date will be within 5 business days from the Tender Price announcement.

(3) In the event that assets (not being near-cash assets) are required to be realised in the Tender Pool this date will be within 10 business days from the Tender Price announcement.

Capitalised terms used but not defined in this announcement will have the same meaning as set out in the Circular.

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