³ÉÈËÓ°Òô

On 6 August, Honeycomb Investment Trust that it had made a proposal to Pollen Street Secured Lending plc (PSSL) regarding a possible merger, with the resulting enlarged group being valued at £1.5bn. The possible merger would result in PSSL shareholders holding 65.3% of the enlarged group on a fully diluted basis.

Honeycomb went on to state it would seek confirmation from the FCA that the enlarged group is eligible for a transfer to the premium segment of the Main Market, noting the enhanced scale of the company would support inclusion in the FTSE 250 and attract a larger investor base.  Honeycomb stated, ‘the combination is expected to result in compelling value creation for both sets of shareholders, with enhanced overall shareholder dividend potential relative to their respective standalone dividend prospects’.

However, the board of PSSL have since to the possible offer, affirming their desire to continue to pursue a tie-up with Waterfall Asset Management. Since Waterfall’s initial announcement on 25 February 2020, it has requested 6 extensions to make a firm offer for the company,  the most recent of which was on 11 August 2020. The delay has largely been put down to PSSL’s investment manager, PSC Credit Holdings, failing to provide company information for the due diligence process, believing that the request was ‘highly unusual’ and not in the best interest of the company. PSSL served a 12 month notice of termination on its investment manager and have taken legal action following the ongoing dispute. For more on this, see ‘Pollen Street Secured Lending determined to keep conversation going’.  PSC, which is part of the same group as Honeycomb’s investment manager, Pollen Street Capital, on 10 August, that it had provided the requested material to PSSL months ago.

PSSL have stated that Waterfall’s offer of 900 pence per share is more favourable than Honeycomb’s offer, which would value PSSL at 711.8 pence per share - representing a discount of 5.1 % to the closing midmarket price of 750 pence per share on 6 August 2020 and of 25 % to PSSL's published net asset value per share of 948.5p on 30 June 2020.  The board further confirmed that this is the fourth proposal they have received from Honeycomb in recent weeks, of which previous written proposals included a quantum of a partial cash alternative, not included in the latest announcement. Despite noting that the partial cash alternative had improved over the last 3 written proposals, the board concluded that this was not to a level that ‘either compared favourably with the proposal received from Waterfall or was likely to command sufficient support from PSSL shareholders’.

Waterfall currently has the support of Invesco Asset Management, PSSL’s biggest shareholder. Invesco holds a 24.7% stake and has provided an irrevocable undertaking to vote in favour of the offer. Honeycomb has also indicated that it has support from certain investors holding 30.7% of PSSL shares.

Honeycomb has until 3 September to make a firm offer for PSSL, and Waterfall has until 8 September to do so.

Market Tracker will continue to monitor these transactions as they develop.