Delaware Investments Dividend and Income Fund (NYSE:DDF) has obtained all shareholder approvals to be merged into Abrdn Global Dynamic Dividend Fund (AGD). The management company has now outlined the operational process, with the DDF ticker being retired on the NYSE on March 10, 2023. On that date, the DDF ticker will disappear, and shareholders will be given AGD shares in lieu of their old holdings:
PHILADELPHIA, PA / ACCESSWIRE / December 22, 2022 / The Board of Trustees of each Acquiring Fund, listed below, announces that the proposed reorganization of several closed-end investment companies (each an “Acquired Fund”) advised by Delaware Management Company into the respective Acquiring Fund (“Reorganizations”) will each be completed by the open of business on the New York Stock Exchange on Monday, March 13, 2023, subject to the satisfaction of customary closing conditions.
Summary (AGD)
To facilitate the Reorganizations, all shares of IVH, DEX, DDF and MGU will cease trading on the New York Stock Exchange as of market close on Friday, March 10, 2023 and Acquired Fund shareholders will be issued new issued shares of the respective Acquiring Fund. The Reorganizations will each occur based on the relative net asset values of the common shares of the Acquired Funds.
Each Reorganization is expected to benefit each fund’s shareholders in a number of important ways, providing greater opportunities to realize economies of scale by combining the funds’ assets resulting in a larger fund. Additionally, each Reorganization is expected to help ensure the viability of the resulting Combined Fund by increasing scale, liquidity and marketability of the fund.
It will be interesting to see how the management teams shake-out. There is clearly overlap in terms of number of portfolio managers and track record, so it is interesting to see who wins. From a historic perspective, DDF is the stronger fund, with a much narrower discount to NAV. In fact DDF used to consistently trade at premiums to NAV. Our Merger Arbitrage section below details the current trades to be had in the pair.
As discussed in the past, the Delaware Management Company is closing up shop on the CEF business, and it has done all that it could in order to incentivize shareholders to vote for the merger. DDF shareholders should understand they are now transitioning into the AGD ticker, and also try to gauge how the management team will shape up. The most important aspect for DDF is a management team closer aligned with what the fund had had in the past, where it exhibited a robust performance and the market rewarded it with a premium to NAV.
Merger Arbitrage Opportunities
Given the shareholders approvals and the operational set-up that is continuing according to schedule, let us have a look at where the market is shaking out in respect to merger arbitrage opportunities:
DDF has historically been the stronger fund, with a better performance and collateral selection. An interesting development has happened, where, despite the merger, DDF is trading at a narrower discount to net asset value when compared to AGD. You should sell DDF here since one should expect a -3% performance from the NAV discount moving to what we see for AGD, namely roughly -13%. This is a poor set-up for DDF shareholders since they are being taken over by a weaker fund. Let’s see how the management team shakes up.
The arbitrage opportunity still persists here, with over 6% to be picked up by buying IVH instead of ACP. It is fairly simple – we know that in March, IVH holders will get an equivalent amount of ACP shares for their market value. At that point, they will revert to a discount to NAV of only -1.9%. We are presuming there are factors relating to the high yield collateral in play here, although we are very surprised regarding the very, very wide levels between these two.
The market likes this merger. The two funds now have virtually the same discount to NAV now, and more importantly, it has moved in lockstep in the past three months. There are no merger arbitrage trades to be had for this pair.
Conclusion
DDF is now set to be merged into AGD. On March 10, 2023, the DDF ticker will cease to exist on the NYSE, and existing shareholders will be issued AGD shares. As a shareholder, you do not need to take any action at this point – the brokerage houses and the exchange are going to process the corporate action. DDF and AGD expose a slight difference in discounts to NAV of 3%, but the real merger arbitrage opportunity lies with the IVH/ACP pair. An investor looking to enter ACP can do it now via IVH at a 6% discount. As a DDF shareholder, one needs to keep a close eye on how the management team for the fund is going to be shuffled post-merger. Historically, DDF has been the stronger fund with more robust results. If the AGD portfolio managers win the management battle, expect larger discounts to NAV in the future, consistent with AGD’s historic norm.
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