Two BlackRock investment trusts propose merger

The boards of BlackRock Throgmorton Trust (LSE:THRG) and BlackRock Smaller Companies (LSE:BRSC) have proposed a merger in the latest sign of consolation gathering pace within the investment trust industry.

The boards said the move will “bring together two similar investment companies with significant portfolio overlap and create a company with net assets of approximately £780 million, delivering greater scale, liquidity and cost efficiencies”.

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The proposed combination, which is subject to approval by both sets of shareholders, will result in BlackRock Smaller Companies Trust having two fund managers, Roland Arnold and Dan Whitestone (who currently manages THRG).

Over the past decade, THRG has been the better performer, returning 159.7% in share price total return terms versus 110.7% for BRSC. This is ahead of the 89% return for the trusts’ benchmark, the Deutsche Numis Smaller Companies plus AIM (excluding Investment Companies).

Over five years, though, both trusts are in the red, with THRG down -6.4% and BRSC losing -3.1%, with higher interest rates acting as a headwind for this area of the market. Those returns are below the 13.6% gain for the Deutsche Numis index.

Shareholders will be offered a 38% cash exit for THRG and 28% of BRSC’s shares at a discount of 1%. THRG’s current discount is 8.4%, while BRSC’s is 10.7%.

If given the green light, the enlarged BRSC will introduce a performance-related tender offer, which will result in shareholders being offered an escape route on a 4% discount if it underperforms its benchmark over a three-year period.

The introduction of a performance-linked escape route has become something of a growing trend, which we analyse separately here.

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Activist investor Saba Capital, which currently owns 17.8% of THRG and 10.4% of BRSC, said: “Saba welcomes today’s announcement, which includes several shareholder-friendly initiatives for the combined company, such as reduced management fees, lower ongoing charges, an initial cash exit opportunity and a triennial conditional exit opportunity.”

Last January, BlackRock struck a deal with Saba to not seek changes to four investment trusts it runs until 2027: BlackRock American Income Trust (LSE:BRAI), BlackRock Energy and Resources Income (LSE:BERI), BlackRock Smaller Companies (LSE:BRSC) and BlackRock World Mining Trust Ord (LSE:BRWM). In light of the proposed merger, this term has been extended to 2030 for BRSC.

These other commitments hold until the day after the trusts hold their annual general meeting (AGM) next year, or after 31 August, whichever is first.  

Over the past couple of years, investment trust mergers have been on the rise. Last month, in the first proposed merger of 2026, plans were announced for Aberdeen Equity Income Trust (LSE:AEI) to absorb stablemate Shires Income Ord (LSE:SHRS).

A key driver has been consolidation within the wealth management industry, with such firms being big investors in investment trusts.

As a result, fewer wealth management clients now control greater sums of money and, due to this, will invest only in investment trusts of a certain size for liquidity reasons (the ability to buy and sell easily).

For small investment trusts, those with assets below £300 million, it is more difficult for larger investors to commit a large sum.