Fidelity Japan board rejects AJOT merger proposal

(Sharecast News) - Fidelity Japan Trust (FJV) firmly rejected a proposed merger from AVI Japan Opportunity Trust (AJOT) on Friday, following AJOT's public announcement of plans to combine the two investment trusts through a scheme of reconstruction on Thursday. The AJOT proposal outlined a rollover of FJV's assets into AJOT, offering FJV shareholders a cash exit capped at 25%.

AJOT argued that the merger would create a larger, more liquid fund with enhanced access to opportunities in the Japanese equities market.

It also highlighted its own track record of outperformance and discount control mechanisms, and noted that its proposal was supported by FJV's largest shareholder, City of London Investment Management, which holds about 23% of FJV's shares.

In response, FJV confirmed on Friday that it had reviewed and rejected a similar non-binding proposal from AJOT last August.

The board said that it had given further consideration to various strategic options, including verbal proposals from AJOT, before publishing its final results in March.

However, it concluded that continuing with its existing structure was in the best interests of shareholders.

FJV defended its performance and investment approach, pointing to its long-standing presence in Japan through Fidelity, which manages over $13bn in Japanese equity mandates.

Over the 10 years ended 31 December 2024, FJV's net asset value had risen by 146%, narrowly outperforming its reference index.

The trust noted that it significantly beat its benchmark in 2019 and 2020, with the board saying it remained confident that market conditions would again favour its investment style.

FJV shareholders are set to vote on the trust's continuation at the upcoming annual general meeting in May.

If approved, the board said it was committed to an unconditional tender offer for all outstanding shares, excluding treasury shares, after a three-year period ending December 2027.

"The board remains focused on ensuring the company returns to delivering strong investment performance and is confident that the portfolio is well placed to benefit from the more positive outlook for the Japanese market," said Fidelity Japan chair David Graham.

"The board of FJV, which has a duty to act in the best interests of all FJV's shareholders, recommends shareholders vote in favour of continuation of the company at the AGM in May."

Graham said the board believed it was appropriate to allow all shareholders a chance to vote on the company's continuation in May, and did not consider it is in shareholders' interests to take forward the AJOT proposals in isolation at this time.

"Regardless of the outcome of the continuation vote, the board will always consider any proposal it receives as a matter of good corporate governance."

At 1030 BST, shares in Fidelity Japan Trust were down 3.59% at 161p.

Reporting by Josh White for Sharecast.com.