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Gartmore Growth proposes tender offer

The Gartmore Growth Opportunities investment trust has today announced a tender offer, as Citywire suggested it might last month.

When Citywire reported on news of a 40% tender offer from Gartmore Irish Growth almost exactly this time last month we speculated it could set a precedent for the £125 million Gartmore Growth Opportunities (GGO). Highly respected fund manager Gervais Williams runs both.

To be fair it was not hard to see some kind of corporate action ahead, although the investment trust industry can often hold off for a long time when it does not want to take action.

Gartmore Growth Opportunities has a vote on the redemption of its loan stock scheduled for the end of the year and a wind up vote in June 2005. Its biggest shareholder, trustbuster Laxey Partners with 17%, could have used these events to instigate corporate action. The tender proposed today should head off a showdown.

In addition, less aggressive activist shareholder Advance UK investment trust holds a 6.2% stake, which could have added to the pressure felt by the board to deal with the issue.

Gartmore Growth Opportunities is also one of the trusts to feature on broker CloseWins' list of likely potential corporate activity for 2004, which has proved extremely predictive so far this year.

Gartmore Growth Opportunities proposes a tender offer for 50% of its shares at about a 7% discount to its mid price. The company also plans to offer an early redemption on its loan stock.

Shareholders will vote on the proposal on 6 April and if the tender gets the thumbs up the trust's June 2005 wind-up vote will be pushed back five years to 2009.

Williams told Citywire he has already used the markets' recent strength to liquidate about 10% of the portfolio and he is hopeful it will prove to be a very low cost tender.

When Gartmore Irish announced its tender offer there was not much to gain by taking up the offer because of the narrow discount the shares traded at to net asset value, the trust's specialist mandate and the solid prospects going forward.

At the time we suggested the Gartmore Irish tender was probably only worth taking up for shareholders who wanted out anyway.

The case for cashing out of Gartmore Growth are more compelling. The tender will offer an estimated 6.4% upside based on Wednesday's market price.

Also, while Gartmore Growth does have an impressive performance record and a good manager, it is part of a large sector with other good trusts on significantly wider discounts than the 7% implied by the tender offer.

One such trust is the £70 million Gartmore Smaller Companies investment trust . It could prove a good fund to switch into for existing Gartmore Growth shareholders who are fairly happy with the status quo but want to take advantage of the narrow discount offered by the tender.

Although Gartmore Smaller Companies has a different named manager he works closely with Williams and the portfolios and three year performance record of the two funds are quite similar. What is more you can buy Gartmore Smaller on a 17% discount.

The discount on this trust, as with other smaller companies investment trust, has narrowed recently and compares with a 19% average discount over the last 12 months and an average 19% discount on UK Smaller Companies trusts.

There is also the chance of further corporate action at Gartmore Smaller, although this should only be viewed as a speculative aside.

Many investment trust watchers question the logic of three Gartmore UK smaller companies investment trust (Gartmore Fledgling , also run by Williams, is the third) and a merger looks like the obvious course of action.

But while such action looks obvious it may not prove so straightforward in practice, although the recent sensitivity of Gartmore to shareholder value is a good sign.

The discount on the Smaller Companies trust, which recently has been wider than Growth Opportunities' discount, could narrow as a result and a merged entity should be more marketable on the back of its larger size and liquidity.

Gartmore Growth Opportunities shares are up 5p to 257p on the news while Gartmore Smaller Companies shares are down 5p with the market at 414p.

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