On behalf of the Directors of Magellan, as responsible entity of Magellan Global Fund (Directors), I am pleased to provide you with this Explanatory Memorandum which contains details about the restructure proposal and the implications for you as an existing investor in the Magellan Global Fund.
The restructure involves the proposed acquisition of all of the units in MGE and MGG by Magellan Global Fund.
As a unitholder in the Magellan Global Fund, you are being asked to consider proposed changes to the Magellan Global Fund’s constitution which are required to facilitate the restructure and will result in Magellan Global Fund having two unit classes on issue:
If the restructure proceeds, you will continue to hold the same units in Magellan Global Fund and the number and value of your units will remain unchanged, however we will now refer to these as Open Class Units. You will continue to have the ability to apply for and redeem units directly with Magellan Global Fund RE, however, you will gain the ability to trade your Open Class Units at live market prices on the ASX. This feature is not currently available to Magellan Global Fund Unitholders.
Separately, unitholders in MGE will be offered Open Class Units in exchange for their existing units in MGE, and unitholders in MGG will be offered Closed Class Units in exchange for their existing units in MGG. The value of new units in the Magellan Global Fund that each unitholder in MGE and MGG receives will be equal to the value of the units they hold in MGE and MGG at the time the restructure becomes effective.
If the restructure proceeds, Magellan Global Fund would have approximately $16.0 billion of assets (on an indicative basis having regard to the value of assets held by the Magellan Global Fund, MGE and MGG as at 30 September 2020). The structure of the Magellan Global Fund following implementation of the restructure is detailed in the following diagram:
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MGF Partnership Offer
Should the restructure proceed, and subject to the necessary regulatory approvals, Magellan Global Fund RE intends to offer all unitholders in the Magellan Global Fund following implementation of the restructure the ability to subscribe for new Closed Class Units (the MGF Partnership Offer). We expect to launch the MGF Partnership Offer in January 2021.
The subscription price for the new Closed Class Units under the MGF Partnership Offer will be the NAV per Closed Class Unit on the Business Day immediately prior to their allotment. Successful applicants will also receive:
- a valuable benefit in the form of additional Closed Class Units worth 7.5% of their subscription; and
- a MGF Option for each new Closed Class Unit allotted, which will be exercisable into one Closed Class Unit with the exercise price set at a 7.5% discount to the prevailing net asset value of Closed Class Units at the time of exercise. The MGF Options will have a three-year term and be exercisable in the period commencing three months following their issue. It is intended that MGF Options will be quoted on ASX.
As part of Magellan Group’s partnership approach with investors in Closed Class Units and to minimise dilution, Magellan Group will fund both the 7.5% additional Closed Class Unit partnership benefit and the 7.5% MGF Option exercise price discount.
Further details of the MGF Partnership Offer are outlined in Section 7.23.
Magellan Global Fund Unitholder Resolutions and Magellan Directors' Recommendation
Magellan Global Fund Unitholders are being asked to vote at a virtual Meeting proposed to be held at 9.00am (Sydney time) on 25 November 2020 on the proposed amendments to the Magellan Global Fund Constitution required to implement the restructure and a related party resolution (together, the Magellan Global Fund Unitholder Resolutions).
The Notice of Meeting contained in Schedule 1 provides further details about how to vote and the arrangements for the virtual Meeting.
The Directors unanimously recommend that Magellan Global Fund Unitholders vote in favour of the Magellan Global Fund Unitholder Resolutions. Each Director intends to vote all Magellan Global Fund units held or controlled by them in favour of the Magellan Global Fund Unitholder Resolutions. The Directors believe that the restructure will provide a range of meaningful benefits to existing Magellan Global Fund Unitholders, including:
- greater flexibility in how you enter and exit your investment;
- enhanced disclosure through the publication of an iNAV throughout the Australian trading day; and
- the opportunity to participate in Magellan Group “partnership benefits” including the MGF Partnership Offer.
Section 3.4 of this Explanatory Memorandum provides a further explanation of the key benefits, disadvantages and risks of the restructure for Magellan Global Fund Unitholders.
When considering the recommendation of Directors, Magellan Global Fund Unitholders should note that Dr. Brett Cairns’ (CEO of the Magellan Group and director of Magellan Global Fund RE) annual short term incentive payment takes into account, amongst a range of criteria, the delivery of key strategic projects, such as the restructure. The implementation of the restructure may contribute to the total annual short term incentive payable to Dr. Cairns for the 2021 financial year. The maximum amount payable to Dr. Cairns, should he satisfactorily achieve all of the conditions governing the payment of his short term incentives, as a result of the delivery of key strategic projects including implementation of the restructure, is $193,125. This matter and other interests of the Magellan Global Fund RE directors in relation to the restructure are set out in Sections 3.5 and 10.1. Dr. Cairns considers that, despite these arrangements, it is appropriate for him to make a recommendation on the restructure. The Magellan Global Fund RE Board (excluding Dr. Cairns) also considers that it is appropriate for him to make a recommendation on the Magellan Global Fund Unitholder Resolutions given his role in the operation and management of Magellan Global Fund and his deep industry knowledge.
It should be noted that the restructure is subject to a number of conditions, including approvals by unitholders in Magellan Global Fund, MGE and MGG, regulatory approvals (including ASX quotation) and receipt of judicial advice from the Court.
Independent Expert’s Opinion
The Directors have appointed Lonergan Edwards & Associates Limited as the Independent Expert to provide an opinion on the restructure (set out in Schedule 2).
The Independent Expert has concluded that the restructure is in the best interests of Magellan Global Fund Unitholders in the absence of a Superior Proposal.
If, after reading this Explanatory Memorandum, you have any questions regarding the Restructure or the Magellan Global Fund Unitholder Resolutions, please call the Magellan Global Fund Unitholder Information Line on 1300 127 780 (Australia) or +61 2 8259 8566 (International) between 8.30am and 5.30pm (Sydney time) Monday to Friday, or consult your legal, investment or other professional adviser.
I look forward to your participation at the Meeting on [25 November 2020] and encourage you to vote in favour of the Magellan Global Fund Unitholder Resolutions.
MAGELLAN ASSET MANAGEMENT LIMITED
as responsible entity of Magellan Global Fund