Buyback promise brings Mepit reprieve

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The Independent Online
US ARBITRAGEURS yesterday backed out of an attempt to force a wind-up of the pounds 1bn Mercury European Privatisation Investment Trust (Mepit) after the trust's board made the unprecedented promise of an open-ended share buyback.

Elliott Associates, the United States firm which specialises in forcing underperforming trusts to restructure, withdrew a requisition for a vote on forcing the trust to dissolve itself and offer shareholders a cash exit.

Elliott, which holds 4 per cent of the trust, called for the vote last week with the support of two other trusts, Advance UK and Scottish Value. They claimed the trust had underperformed the market, returning minus 2.1 per cent last year against a benchmark of plus 8.5 per cent.

It had bought its stake in the last four weeks when the trust's share price was at a 10 per cent discount to the value of its assets. By pressing the trust to offer shareholders cash at the full value of its assets, Elliott stood to make a quick gain.

The arbitrageur backed out after meeting Mepit's fund managers, Merrill Lynch Mercury, who promised to continue buying back shares until the 10 per cent discount had narrowed to less than its competitors. Its stated goal is to narrow the discount to less than 7 per cent, the average for the European investment trust sector.

The promise is unprecedented because it commits the trust to buying back its shares even after it has exceeded the 15 per cent of shares for which it has authority.

If the target of 7 per cent is missed, the board will hold an immediate egm to authorise a further buyback.

Ian Barby, managing director of investment trusts at Merrill Lynch Mercury, said: "This pro-active stance towards the buyback could change the whole attitude to investment trusts.

"If we can lead the way in having this continuing buy-back policy, it could be positive for the whole sector."

Elliott is still pushing for a similar vote at another investment trust, the pounds 300m US Smaller Companies trust, run by Foreign & Colonial.

Shares in Mepit rose slightly from 167p to 167.5p.